KUALA LUMPUR (Feb 23): PublicInvest Research has maintained its "neutral" call on AirAsia X Bhd (AAX) with an unchanged target price of 41.5 sen, as it still remains cautious on the impact of a stronger greenback on the airline's operating cost, which includes aircraft maintenance and fuel costs.

The research firm said the airline recorded its first net profit of RM230.5 million since its initial public offering for its financial year 2016 (FY16) compared with its FY15 net profit of RM349.6 million.

"We believe the positive performance will flow through into FY17 and onwards as a result of better cost efficiencies and improvement in its aircraft utilisation," it said.

"Nevertheless, we still remain cautious on the impact of a stronger US dollar on its operating cost (i.e. aircraft maintenance and fuel costs), though fuel price volatility is expected to be muted as AAX has already hedged 74% of its fuel cost at US$60 (RM267) per barrel (vs current fuel price at US$65 per barrel)," it added.

"Its FY16 core net profit of RM251.1 million was above our and consensus' estimates, accounting for 122.9% and 133.7% respectively, with the discrepancies mainly due to lower-than-expected finance costs," it added.

The firm said increased passenger volume of 29.7% year-on-year (y-o-y) and available seat kilometres (ASK) of 25.5% y-o-y contributed to its 50.5% y-o-y increase in its scheduled flights revenue to RM2.5 billion, causing its fourth quarter ended Dec 31, 2016 (4QFY16) revenue to surge by 39.1% y-o-y to RM1.17 billion.

"By region, FY16 revenue growth is mainly driven by strong demand from the North Asian and Australian segments, which jumped by 38.2% y-o-y and 47.2% y-o-y respectively," it added.

AAX reported an earnings before interest, taxes, depreciation, amortization, and restructuring or rent costs of RM1.2 billion in FY16 (FY15: RM813.4 million) mainly due to a 94.4% y-o-y increase in its North Asian segment.

This is on the back of lower cost per ASK to 13 sen due to lower average fuel cost at US$61 per barrel vs US$76 per barrel in FY15.

AAX's operating expenses in FY16 surged by 17.7% y-o-y due to increase in maintenance, overhaul and user charges expenses and aircraft operating lease expenses due to an increase in fleet size and stronger US dollar against the ringgit.

"In addition, its other operating expenses also jumped by 82.9% y-o-y to RM251.3 million, partially due to fixed assets written off amounting to RM27.5 million and receivables impairment of RM11.7 million while a forex gain of RM78 million was recognised in FY15," the firm added.

The airline's Thailand segment saw short-term impacts from a weakened tourism sector in 4Q16 after the passing of King Bhumibol Adulyadej while the government also initiated a crackdown on zero-dollar tours for Chinese tourists.

Meanwhile, AirAsia X Indonesia services have been temporarily suspended since September 2016 as part of its aim to improve operational efficiencies.

At 10.33am, AAX fell 2.41% or 1 sen to 40.5 sen with 29.97 million shares traded.