Results Review
(Member of Alliance Bank group)
AirAsia X
PP7766/03/2013 (032116)
Aviation
20 May 2014
12-month upside potential
Previous target price
Revised target price
Current price (as at 19 May)
Capital upside (%)
Net dividends (%)
Total return (%)
0.75
0.74
0.76
-2.6
0.0
-2.6
Key stock information
Syariah-compliant?
Market Cap (RM m)
Shares outstanding (m)
Free float (%)
52-week high / low (RM)
3-mth avg volume ('000)
3-mth avg turnover (RM m)
Yes
1,789.6
2,370.4
35.9
1.27 / 0.75
4,214.9
3.3
Share price chart
Bloomberg Ticker: AAX MK | Bursa Code: 5238
Profits elusive in 2014
Analyst
Malaysian Research Team
allianceresearch@alliancefg.com
+603 2604 3333
Share price performance
1M
Absolute (%)
-0.7
Relative (%)
-2.6
Hold
3M
-20.9
-23.4
6M
-27.4
-30.5




1Q14 losses larger than expected
Yield compression worsens as Australian routes bleed
Expect losses in FY14F, slashed FY15/16F by 95%/41%
Maintain Hold with TP of RM0.74, based on 1.3x P/BV
Highlights
Yield compression worsens in 1Q14. Stripping out unrealised forex, cash flow hedge and
deferred tax adjustments, AirAsia X (AAX) reported a core net loss of RM60.6m in 1Q14 (vs
RM44m profit in 1Q13; -26% q-o-q). This was below expectations. Passenger yields were
weaker than expected, with revenue/RPK falling to 9.4 sen in 1Q14 (-24% y-o-y; -4% q-o-q).
Meanwhile, cost/ASK rose to 12.6 sen (+3% y-o-y; +5% q-o-q), mainly driven by a weaker
MYR. A larger loss is expected in 2Q before earnings start to recover in 2H.
Australian routes continue to bleed. Notably, AAX’s Australian segment reported a negative
EBITDAR of RM4.3m for the first time since its listing. We believe the losses would have been
more severe, had management not tactically reduced the frequencies of the unprofitable
routes (Perth, Sydney). The freed-up capacity has been allocated to charter flights which are
more profitable, according to the management. As a result, ASK grew by only 60% y-o-y in
1Q14, missing earlier guidance of 72% ASK growth for the quarter. Tactical capacity
management was the main reason behind the surge in load factor to 85.8% in 1Q14
(+1.7ppts y-o-y; +5.0%ppts q-o-q).
Our View
Lowering 2014 ASK growth target. In line with its new tactical capacity management
strategy, management has lowered its ASK growth target to 41% in 2014 (previously 48%).
We believe this is a sound strategy given the overcapacity on the Australian routes. We have
slashed our FY14-16F earnings forecasts; we expect losses in FY14F, and have cut FY15/16F
earnings by 95%/41% as we incorporate lower ASK forecasts and yields.
Limited impact from the MH370 incident. Meanwhile, AAX has seen demand for its Chinese
routes falling by 10% in the immediate 4 weeks after the MH370 incident. However, demand
has steadily recovered thereafter. We do not expect any lasting impact from the tragic
incident to affect passenger demand on its Chinese routes.
Recommendation
Maintain Hold; TP of RM0.74. Despite the possibility that AAX could benefit from a potential
restructuring of MAS, we are maintaining our HOLD rating in light of the negative earnings
momentum. We believe consensus is currently over-optimistic. Given the lack of earnings
clarity, we are switching our valuation methodology to P/BV, with our TP revised to RM0.74,
based on 1.3x FY14F P/BV (-1SD).
All required disclosure and analyst certification appear on the last two pages of this report. Additional information is available upon
request. Redistribution or reproduction is prohibited without written permission
Results Review | AirAsia X | 20 May 2014
Figure 1 : Results Summary
FYE 31 Dec
1Q 2014
1Q2013
4Q 2013
y-o-y
q-o-q
749.5
N/A
-33.1
6.3
-11.3
-60.6
535.3
N/A
57.6
84
50.2
43.9
679.6
N/A
-24.1
14.5
-131.3
-48.1
40
nm
nm
-92.5
nm
nm
10.3
nm
-37.5
-56.5
91.4
-26
N/A
-4.4
-1.5
N/A
10.8
9.4
N/A
-3.5
-19.3
FYE 31 Dec (RM m)
FY13
FY14F
FY15F
FY16F
Turnover
Operating Profit
EBITDA
Net Pft (Pre Ex.)
EPS (sen)
EPS Pre Ex. (sen)
EPS Gth (%)
EPS Gth Pre Ex (%)
Net DPS (sen)
BV Per Share (sen)
PE (X)
PE Pre Ex. (X)
EV/EBITDA (X)
Net Div Yield (%)
P/Book Value (X)
Net Debt/Equity (X)
ROAE (%)
2,308
64
-57
-10
-4.3
-0.5
nm
-217
0
52.2
nm
nm
nm
0
1.4
1.4
-9.7
3,382
-17
-203
-133
4.6
-5.6
nm
-1,025
0
56.8
16.2
nm
nm
0
1.3
2.1
8.5
4,064
158
-80
8
6.9
0.3
48
nm
0
63.7
10.9
216.7
nm
0
1.2
2.3
11.4
4,835
264
-19
100
12
4.2
74
1,113
0
75.7
6.3
17.9
nm
0
1
2.4
17.2
P&L Items
Turnover
Gross Profit
Opg Profit
EBITDA
Net Profit
Core Net Profit
Other Data
Gross Margin (%)
Opg Margin (%)
Net Margin (%)
Source: Alliance Research
Figure 2 : Key financial data
Source: Alliance Research, Bloomberg
2
Results Review | AirAsia X | 20 May 2014
DISCLOSURE
Stock rating definitions
STRONG BUY
BUY
HOLD
FULLY VALUED
SELL
-
> 20% total return over the next 3 months, with identifiable share price catalysts within this time frame
> 15% total return over the next 12 months for small caps, >10% for large caps
-10% to +15% total return over the next 12 months for small caps, -10% to +10% for large caps
negative total return > -10% over the next 12 months
negative total return of > -20% over the next 3 months, with identifiable catalysts within this time frame
Sector rating definitions
OVERWEIGHT
- Industry expected to outperform the market over the next 12 months
NEUTRAL
- Industry expected to perform in-line with the market over the next 12 months
UNDERWEIGHT - Industry expected to underperform the market over the next 12 months
Commonly used abbreviations
Adex = advertising expenditure
bn = billion
BV = book value
CF = cash flow
CAGR = compounded annual growth rate
Capex = capital expenditure
CY = calendar year
Div yld = dividend yield
DCF = discounted cash flow
DDM = dividend discount model
DPS = dividend per share
EBIT = earnings before interest & tax
EBITDA = EBIT before depreciation and amortisation
EPS = earnings per share
EV = enterprise value
FCF = free cash flow
FV = fair value
FY = financial year
m = million
M-o-m = month-on-month
NAV = net assets value
NM = not meaningful
NTA = net tangible assets
NR = not rated
p.a. = per annum
PAT = profit after tax
3
PBT = profit before tax
P/B = price / book ratio
P/E = price / earnings ratio
PEG = P/E ratio to growth ratio
q-o-q = quarter-on-quarter
RM = Ringgit
ROA = return on assets
ROE = return on equity
TP = target price
trn = trillion
WACC = weighted average cost of capital
y-o-y = year-on-year
YTD = year-to-date
Results Review | AirAsia X | 20 May 2014
DISCLAIMER
This report has been prepared for information purposes only by Alliance Research Sdn Bhd (Alliance Research), a subsidiary of Alliance
Investment Bank Berhad (AIBB). This report is strictly confidential and is meant for circulation to clients of Alliance Research and AIBB
only or such persons as may be deemed eligible to receive such research report, information or opinion contained herein. Receipt and
review of this report indicate your agreement not to distribute, reproduce or disclose in any other form or medium (whether electronic
or otherwise) the contents, views, information or opinions contained herein without the prior written consent of Alliance Research.
This report is based on data and information obtained from various sources believed to be reliable at the time of issuance of this report
and any opinion expressed herein is subject to change without prior notice and may differ or be contrary to opinions expressed by
Alliance Research’s affiliates and/or related parties. Alliance Research does not make any guarantee, representation or warranty
(whether express or implied) as to the accuracy, completeness, reliability or fairness of the data and information obtained from such
sources as may be contained in this report. As such, neither Alliance Research nor its affiliates and/or related parties shall be held liable
or responsible in any manner whatsoever arising out of or in connection with the reliance and usage of such data and information or
third party references as may be made in this report (including, but not limited to any direct, indirect or consequential losses, loss of
profits and damages).
The views expressed in this report reflect the personal views of the analyst(s) about the subject securities or issuers and no part of the
compensation of the analyst(s) was, is, or will be directly or indirectly related to the inclusion of specific recommendation(s) or view(s) in
this report. Alliance Research prohibits the analyst(s) who prepared this report from receiving any compensation, incentive or bonus
based on specific investment banking transactions or providing a specific recommendation for, or view of, a particular company.
This research report provides general information only and is not to be construed as an offer to sell or a solicitation to buy or sell any
securities or other investments or any options, futures, derivatives or other instruments related to such securities or investments. In
particular, it is highlighted that this report is not intended for nor does it have regard to the specific investment objectives, financial
situation and particular needs of any specific person who may receive this report. Investors are therefore advised to make their own
independent evaluation of the information contained in this report, consider their own individual investment objectives, financial
situations and particular needs and consult their own professional advisers (including but not limited to financial, legal and tax advisers)
regarding the appropriateness of investing in any securities or investments that may be featured in this report.
Alliance Research, its directors, representatives and employees or any of its affiliates or its related parties may, from time to time, have
an interest in the securities mentioned in this report. Alliance Research, its affiliates and/or its related persons may do and/or seek to do
business with the company(ies) covered in this report and may from time to time act as market maker or have assumed an underwriting
commitment in securities of such company(ies), may sell or buy such securities from customers on a principal basis and may also perform
or seek to perform significant investment banking, advisory or underwriting services for or relating to such company(ies) as well as solicit
such investment, advisory or other services from any entity mentioned in this report.
AIBB (which carries on, inter alia, corporate finance activities) and its activities are separate from Alliance Research. AIBB may have no
input into company-specific coverage decisions (i.e. whether or not to initiate or terminate coverage of a particular company or securities
in reports produced by Alliance Research) and Alliance Research does not take into account investment banking revenues or potential
revenues when making company-specific coverage decisions.
In reviewing this report, an investor should be aware that any or all of the foregoing, among other things, may give rise to real or
potential conflicts of interest. Additional information is, subject to the overriding issue of confidentiality, available upon request to
enable an investor to make their own independent evaluation of the information contained herein.
Published & printed by:
ALLIANCE RESEARCH SDN BHD (290395-D)
Level 19, Menara Multi-Purpose
Capital Square
8, Jalan Munshi Abdullah
50100 Kuala Lumpur, Malaysia
Tel: +60 (3) 2604 3333
Fax: +60 (3) 2604 3921
Email: allianceresearch@alliancefg.com
Bernard Ching
Executive Director / Head of Research
4