AIRASIA X BERHAD - Decent 3Q Results Amid Stiff Competition

AirAsia X (AAX) reported 3Q13 net profit of RM26.4m (-45.9% YoY, 2Q13: reported net loss of RM32.3m). Excluding exceptional items such as unrealised forex gain/loss and tax incentives, its 3Q13 core net profit was RM4.2m (+485.4% YoY, 2Q13: net loss of RM28.4). Its 9M13 core net profit improved to RM20.1m from core net loss of RM29.6m in 9M12. Although we expect seasonally better 4Q numbers, we consider 9M13 to be slightly below our expectations. Amid stiff competition and high fuel costs, AAX managed to hold up its revenue per ASK to 11.95sen (-1.6% YoY, +3.0% QoQ) and control its cost per ASK to 11.64sen (+1.2% YoY, -2.3% QoQ). We believe AAX will be able to execute effectively its growth plans with the expected opening of its Bangkok hub in 1Q14 and KLIA2 in May 2014. We maintain our Outperform call on AAX with an unchanged target price of RM1.43.

Revenue jumped and EBITDAR improved. AAX reported 3Q13 revenue of RM601.5m (+23.6% YoY, +22.2% QoQ), driven by (i) +32.4% YoY in passengers to 843,693; and (ii) +3.7% YoY in ancillary revenue per passenger to RM144.3. AAX was able to fill up its expanded fleet with a commendable 3Q13 passenger load factor of 82.3% (3Q12: 83.3%). In addition, its cargo & freight revenue improved 19.8% yoy to RM23.0m. 3Q13 EBITDAR and operating profit improved 33.6% and 85.4% yoy to RM104.9m and RM25.0m respectively.

Yield and cost under control despite stiff competition and higher average fuel cost. Despite significant seat capacity expansion and stiff competition, AAX managed to minimise its passenger yield erosion with revenue (excluding cargo) per RPK of 13.7sen (-3.0% YoY, +1.9% QoQ). Although 3Q13 average passenger fare was lower at RM501.1 (-4.8% YoY, -1.5% QoQ) due to promotions, it was partly mitigated by higher ancillary revenue per passenger of RM144.3 (+3.7% YoY, +1.7% qoq). Costs were under control despite higher average fuel cost of USD130.7/barrel (+4.7% YoY, +2.7 QoQ) and rapid fleet expansion with cost per ASK of 11.6sen (+1.2% YoY, -2.3% QoQ). AAX‟s 3Q13 fuel burn decreased to 1,690 gallons/hr from 1,750 gallons/hr in 2Q13.

Outlook. While AAX‟s forward performance will be heavily dependent on intensity of competition, fuel costs and USD/MYR exchange rate, we believe AAX will be able to execute effectively its growth plans such as commencing operations in another hub in Bangkok in 1Q14 and leveraging on the opening of the new KLIA2 in May 2014. We expect competition from MAS to taper off after it reported disappointing passenger yield and loss in 3Q13. Since end-3Q13, AAX has added two new routes Adelaide (wef 31 Oct 2013) and Nagoya (wef 17 Mar 2014) as its 18th and 19th destinations respectively. Maintain Outperform. We remain optimistic of AAX‟s long-term growth potential and reiterate our Outperform call on AAX. We believe AAX will be able to withstand the stiff competiion with its low-cost competitive advantage and synergies & network connectivity with the AirAsia group.