AirAsia X losses to narrow, say analysts

PETALING JAYA: Analysts expect AirAsia X Bhd's losses to narrow with increasing demand, after having recorded the worst quarterly net loss of RM128.8 million since its listing.
CIMB Research believes the losses in the second half of 2014 and FY15 will narrow, as much of the capacity expansion were put in place in the second half of 2013, while the year-on-year revenue per available seat kilometres (ASK) declines will also reduce in the next half year as demand picks up and fills available capacity.
AirAsia X is only expected to add two to three planes to the Malaysia fleet next year, with the remaining five to six deliveries allocated to Thailand AirAsia X (TAAX) and Indonesia AirAsia X (IAAX).
"This is less than half the pace of the 11 plane additions to AirAsia X's Malaysia fleet over 2013 and 2014," it said, adding that potential Malaysian Airline System Bhd (MAS) capacity cutbacks will also directly benefit AirAsia X.
However, CIMB Research opined that losses at AirAsia X's associates will edge up, saying that these are necessary long-term investments and investors will need to be patient in the near term.
"TAAX will record losses when new Tokyo Narita and Osaka flights start in September, as will IAAX when it starts flights in 4Q14," it added.
Maybank Research noted that while the second half of the year should be better, AirAsia X's net gearing is expected to increase to above 2 times by year-end versus 1.7 times as at June 2014, due to more aircraft acquisition.
The research house opined that the probability of AirAsia X raising capital has increased even though management said it has no plan to do so in the short term.
Maybank Research has placed a "sell" call on AirAsia X, with an unchanged target price of 72 sen.
Public Research, meanwhile, has given a "maintain" call, but with a lower target price of 79 sen as tax incentives for FY14 and FY15 have been cut based on management guidance that the majority of remaining aircraft deliveries will be through operating leases to stabilise the cash flow from aggressive capacity growth.
It said the losses were expected as it is its seasonally weakest quarter, along with the expansion of its route network in China and Japan and additional cost associated with the startup operations in the new hubs in Thailand and Indonesia.
CIMB Research believes losses for AirAsia X in FY15 will reduce, but is downgrading the stock from "hold" to "reduce" as its share price has gone up 19% from recent lows.
"We more than double our loss forecasts for FY14 and FY15 and reduce our target price, based on its average price-to-book value (P/BV) since IPO of 1.75 times from 1.5 times previously," it said.
CIMB Research said the de-rating catalysts for AirAsia X include likely continuing annual losses in Malaysia until FY16 and at least two years of start-up losses from new associates in Thailand and Indonesia.
AirAsia X's share price went down 5 sen or 6.1% to 77 sen yesterday.