AirAsia X’s return to profitability a question mark

Shares in the airline company closed 3% lower at 16 sen last Friday, valuing the company at RM664m

by SHAZNI ONG/ pic by TMR

AIRASIA X Bhd (AAX) could stay in the red until the financial year ending Dec 31, 2021 (FY21), after its net loss widened 16.4% year-on-year (YoY) in the third quarter ended Sept 30, 2019 (3Q19), said analysts.

Shares in the airline company closed 3% lower at 16 sen last Friday, valuing the company at RM663.7 million.

Since hitting its high for the year of 31.5 sen on Jan 29, the stock has fallen almost 50%.

Affin Hwang Investment Bank Bhd downgraded the stock to ‘Sell’ on difficult operating conditions.

“We cut our 2019 to 2021 estimated earnings by RM57 million to RM94 million to account for the weak 3Q19 results and lower revenue forecasts in view of the challenging business outlook,” the research firm said in a recent report.

It expects the carrier to continue reporting losses in 2019 up to 2021 due to stiff competition, subdued passenger growth and the weak ringgit to the US dollar exchange rate.

“The weak results should, in turn, put pressure on its share price,” Affin Hwang added.

AAX’s net loss widened to RM229.89 million in 3Q19 from RM197.46 million the year before due to higher taxation during the period.

Revenue for the quarter fell 6.38% YoY to RM1.01 billion from RM1.08 billion last year.

For the cumulative nine months (9M19), the group’s net loss also extended to RM393.67 million from RM213.43 million a year ago, while revenue dipped 6.4% to RM3.2 billion from RM3.42 billion.

Meanwhile, MIDF Amanah Investment Bank Bhd expects the long-haul low-cost carrier to turn profitable in the FY20 on stronger take-up of its ancillary offerings, especially with the expected introduction of WiFi onboard its fleet.

“While the freight services segment was lower at -4.2% YoY in 9M19, we opine that revenue will improve following the commencement of Teleport.social in 4Q19, which enables sellers on social media to integrate with Teleport’s logistics infrastructure,” it wrote in a note.

The platform, which eliminates the need for online sellers to migrate to a specific market platform to sell products, is expected to realise full-year benefits in FY20 and maximise AAX’s belly space. MIDF also forecasts a net loss of RM209.1 million for AAX in FY19, in view of capacity cuts which the firm expects to continue until year-end.

It believes the ongoing capacity cuts will remain a headwind for the rest of FY19, in addition to the adoption of the Malaysian Financial Reporting Standard 16 (MFRS 16).

MFRS 16 will be a “hurdle” as the majority of AAX’s fleet are leased, with gains from lower interest to be realised beyond the fifth year of the lease term.

“That said, we are maintaining our FY20 forecast earnings at this juncture as we anticipate AAX to break even by 1Q20 before recording profit onwards.

“(This) following cost reduction initiatives via digitalisation; negotiation for lease rates reduction; and addition of short-haul routes such as Kuala Lumpur-Singapore in 4Q19 and Taiwan-Okinawa in 1Q20 to maximise aircraft utilisation,” it stated.

Malaysia’s air safety rating downgrade to Category 2 by the Federal Aviation Administration would also allow AAX to consider new routes in existing core markets, namely North Asia and also new markets such as Europe, it added.