KUALA LUMPUR (Jan 20): AirAsia X Bhd could return to the black at net operating income (NOI) level in the fourth quarter on more rational pricing, higher load factor and cheaper fuel.

MIDF Amanah Investment Bank Bhd analyst Tay Yow Ken wrote in a note today that the research firm expected budget airline AirAsia X to break-even at profit after tax (PAT) level in the fourth quarter ended Dec 31, 2015 (4QFY15).

While profitable at NOI level, Tay said the "main deterrent" to a positive PAT was AirAsia X' interest expenses, which would be higher due to a weaker ringgit versus the US dollar.
 
"Nonetheless, we believe that AAX’s (AirAsia X) 4Q15 results will likely break-even at PAT level,” he said.

During 3QFY15, AirAsia X reported a net loss of RM288.19 million versus a net loss of RM210.85 million a year earlier. 9MFY15 net loss stood at RM561.82 million, compared to RM350.92 million a year earlier.

Today, Tay said AirAsia X was facing fewer threats from Malindo Air and Malaysia Airlines Bhd.

Against Malindo, he said AirAsia X' wide-body aircrafts offered an advantage over Malindo's narrow-body entities.
 
"The bigger aircraft offers advantages such as higher operating efficiency and comfort to passengers, while pricing its fares lower," he said.

Cheaper fuel is also a boon to airlines. Tay said AirAsia X would reap the benefits of lower jet fuel prices this year.

He said cheaper fuel could more than compensate for the weakness in ringgit.

"Meanwhile, we expect the weaker ringgit to be cushioned by natural hedges, as 75% USD denominated cost is hedged against 70% foreign currency revenue (mainly USD and AUD),"  he said.

Tay said MIDF maintained its "buy" call on AirAsia X shares with a target price of 26 sen.

At 12:30pm, AirAsia X shares settled unchanged at 19 sen, for a market value of RM788.1 million. The stock saw some two million shares done.

(Note: The Edge Research's fundamental score reflects a company’s profitability and balance sheet strength, calculated based on historical numbers. The valuation score determines if a stock is attractively valued or not, also based on historical numbers. A score of 3 suggests strong fundamentals and attractive valuations.)