AAX (5238) - AirAsia X Bhd - A turnaround on the horizon
Target RM0.70 (Stock Rating: HOLD)
AAX is doing all in its power to turn around from a tough 2014, and we think it might just succeed. Loss-making flights will be cut, profitable wet leases will be increased, and aircraft deliveries have been delayed. Low oil prices add to the upside, and we are forecasting profits in 2015. We maintain our Hold call and raise our target price to RM0.70 (end-CY15) based on the sector average CY16 P/E of 11x. Our previous RM0.78 target was an atypical two-year end-CY16 target. Our core loss forecast for FY14 is raised slightly for housekeeping matters, but FY15-16 numbers are upgraded. We prefer AirAsia.
We maintain our Hold call and raise our target price to RM0.70 (end-CY15) based on the sector average CY16 P/E of 11x. Our previous RM0.78 target was an atypical two-year end-CY16 target. Our core loss forecast for FY14 is raised slightly for housekeeping matters, but FY15-16 numbers are upgraded. We prefer AirAsia.
Creative solutions
AAX has responded with creative solutions to tackle its issues, including reducing its aircraft fleet additions, and by cutting unprofitable flights to Adelaide and Nagoya in Jan-Feb 2015. AAX has also locked in substantial outward wet leases in 2015 in order to remove excess capacity during the winter lull in Australia. In addition, after factoring in a much lower jet fuel price of US$90/bbl, we are now expecting AAX to achieve a small core net loss of RM31m in 2015 (revised from a RM149m loss), followed by RM151m core net profit in 2016 (revised from RM116m profit). Although the stronger US$ is negative for AAX’s operating costs and debt burden, its impact is unable to offset the huge savings from lower jet fuel prices, even from a cash perspective.
Further upside is possible
We are hopeful that new management at AAX’s competitors will seek to control medium-haul seat capacity and raise fares from later this year. The Malaysian government is also considering waiving the visa fees for Chinese travellers into Malaysia, which will surely help to restore and grow the volume of inbound Chinese traffic. China routes account for 21% of AAX’s seat capacity.
Revised target time frame
We previously set a two-year forward target price of RM0.78, based on 8x CY17 P/E, because we could not value AAX based on its CY16 earnings, which we had earlier expected to be very small. After today’s EPS upgrades, we are now reverting back to our usual one-year forward target price, which we set at RM0.70, based on the sector average CY16 P/E of 11x. We emphasise that although our official target price has been changed from RM0.78 to RM0.70, this is not at all a downgrade, only a change in the time horizon. For illustrative purposes only, our two-year target price would have been RM0.85 (up from RM0.78), based on our new earnings forecasts.
Source: CIMB Daybreak - 19 January 2015
Target RM0.70 (Stock Rating: HOLD)
AAX is doing all in its power to turn around from a tough 2014, and we think it might just succeed. Loss-making flights will be cut, profitable wet leases will be increased, and aircraft deliveries have been delayed. Low oil prices add to the upside, and we are forecasting profits in 2015. We maintain our Hold call and raise our target price to RM0.70 (end-CY15) based on the sector average CY16 P/E of 11x. Our previous RM0.78 target was an atypical two-year end-CY16 target. Our core loss forecast for FY14 is raised slightly for housekeeping matters, but FY15-16 numbers are upgraded. We prefer AirAsia.
We maintain our Hold call and raise our target price to RM0.70 (end-CY15) based on the sector average CY16 P/E of 11x. Our previous RM0.78 target was an atypical two-year end-CY16 target. Our core loss forecast for FY14 is raised slightly for housekeeping matters, but FY15-16 numbers are upgraded. We prefer AirAsia.
Creative solutions
AAX has responded with creative solutions to tackle its issues, including reducing its aircraft fleet additions, and by cutting unprofitable flights to Adelaide and Nagoya in Jan-Feb 2015. AAX has also locked in substantial outward wet leases in 2015 in order to remove excess capacity during the winter lull in Australia. In addition, after factoring in a much lower jet fuel price of US$90/bbl, we are now expecting AAX to achieve a small core net loss of RM31m in 2015 (revised from a RM149m loss), followed by RM151m core net profit in 2016 (revised from RM116m profit). Although the stronger US$ is negative for AAX’s operating costs and debt burden, its impact is unable to offset the huge savings from lower jet fuel prices, even from a cash perspective.
Further upside is possible
We are hopeful that new management at AAX’s competitors will seek to control medium-haul seat capacity and raise fares from later this year. The Malaysian government is also considering waiving the visa fees for Chinese travellers into Malaysia, which will surely help to restore and grow the volume of inbound Chinese traffic. China routes account for 21% of AAX’s seat capacity.
Revised target time frame
We previously set a two-year forward target price of RM0.78, based on 8x CY17 P/E, because we could not value AAX based on its CY16 earnings, which we had earlier expected to be very small. After today’s EPS upgrades, we are now reverting back to our usual one-year forward target price, which we set at RM0.70, based on the sector average CY16 P/E of 11x. We emphasise that although our official target price has been changed from RM0.78 to RM0.70, this is not at all a downgrade, only a change in the time horizon. For illustrative purposes only, our two-year target price would have been RM0.85 (up from RM0.78), based on our new earnings forecasts.
Source: CIMB Daybreak - 19 January 2015
