AirAsia X posts record 2016 annual profit despite forex hit

[JuliusWong 0]

KUALA LUMPUR: AirAsia X’s full-year FY16 core net profit of RM176mil was substantially higher than CIMB Equities Research’s previous forecast of RM116mil, due to higher-than-expected charter incomes.

However, the research house had on Thursday cautioned against extrapolating the results, as ringgit weakness, oil price recovery, potentially stronger competition, and AAX’s new London route could work against it.

“We maintain Reduce, but increase our target price, still based on one time CY17 price-to-book value (P/BV), as we recalibrate the balance sheet to the actual FY16 numbers,” it said.

CIMB Research said AAX delivered a good core net profit in 4Q16 and FY16, reversing previous year’s loss, due to lower oil prices and capacity rationalisation by Malaysia Airlines (MAS).

While yields and loads rose on-year during 9M16, they declined in 4Q16 due to the more than 40% available seat kilometres (ASK) capacity growth, it pointed out.

ASK is a measure of an airline flight's passenger carrying capacity. It is equal to the number of seats available multiplied by the number of km flown.

During FY16, it said AAX expanded its ASK capacity by 25.5% on-year, with growth hitting a high of 43.5% in 4Q16.

During the year, AAX launched new flights to New Delhi and Tehran, restored flights to Chongqing, and introduced Gold Coast-Auckland. AAX also increased frequencies to Sapporo, Shanghai, Beijing and Gold Coast. In 4Q16, AAX launched new services to Mauritius, and increased capacity to Sydney, Osaka, Melbourne and Taipei.

The research house said AAX will likely expand its ASK capacity by 25% in FY17F. Although AAX is not adding additional aircraft to its fleet this year, the ASK expansion is driven by the full-year impact of the capacity put in place in FY16, higher aircraft utilisation, and the redeployment of two wet-leases back to scheduled Malaysian flights.

“ASK growth may exceed 25% if AAX proceeds to launch nine times weekly flights to London Gatwick from June, using two 777-300ER leases.

“AAX last grew capacity by 30% in 2014, when it doubled its Australia network, which caused an 11% on-year fall in base yields. While we forecast FY17F base yields to remain flat, downside risks remain.

“We worry that AAX’s return to European services would be difficult, since direct KL-London seat capacity has increased 55% since AAX stopped its London services in mid-2012.

Including one-stop services via the Middle East Gulf hubs of Dubai, Abu Dhabi and Doha, as well as Istanbul, capacity to London has increased 43%. AAX’s entry into the London market may trigger a defensive response from the incumbents.

CIMB Research pointed out that jet fuel prices have increased from an average of US$53 per barrel in FY16 to a year-to-date average of US$66. AAX hedged 74% of FY17F fuel consumption at US$60 but remains exposed for the rest.

“At the same time, the ringgit has depreciated from an average of RM4.14:US$1 in FY16 to RM4.45 year-to-date. Our forecast in FY17F is for spot jet fuel to average US$65/bbl and for the ringgit to average RM4.30, suggesting downside risks.

“Malindo may take delivery of two A330-300s to launch medium-haul routes.

“MAS will compete on AAX’s Wuhan route from June, while Shanghai frequencies will be increased from seven times to 14 times weekly from March. MAS also plans to increase its A330-300 fleet from 15 to 17-strong in 4Q17F. As FY17F progresses, we expect competition to escalate,” it said.

Read more at http://www.thestar.com.my/business/business-news/2017/02/23/airasia-x-fy16-core-earnings-higher-than-forecast/#0UGeA1yHalHJ50zc.99

Edited February 23, 2017 by JuliusWong