Investor interest fuels AirAsia, AirAsia X surge

PETALING JAYA: Budget airlines AirAsia Bhd and AirAsia X Bhd continued to attract investors interest and were the top two active counters on the local bourse yesterday following their respective fourth quarter results that beat consensus estimates.
AirAsia topped the charts for the second consecutive day yesterday with the stock gaining 3.82%, or 6 sen, at RM1.63 after some 2.06 million shares were traded.
AirAsia's stock performance was buoyed when the carrier returned to profitability with a net profit of RM554.2 million in the fourth quarter ended Dec 31, 2015 (Q4FY15).
Meanwhile, AirAsia X, the long-haul arm of AirAsia, closed the day up 3.77%, or 1 sen to 28 sen on volume of 6.32 million shares.
AAX posted a net profit of RM201.58 million in Q4FY15, its first profit after eight quarters of losses.
The better than expected results helped pushed the two stocks to an eight-month high.
Maybank Investment Bank (IB) Research said AirAsia's operational performance was better than it and consensus had forecast. However, it noted that there were plenty of costs spikes, indicative of kitchen sinking exercise to ensure a "cleaner" 2016 was at hand.
"This resulted in Q4FY15 and 2015 core net profits of RM17 million and RM279 million falling short vs our RM480 million for 2015.
"We tweak our 2016-17 earnings forecasts by -3.7% and -3.0% respectively on management's latest inputs and we introduce 2018 forecast," its aviation analyst Mohshin Aziz said.
MaybankIB Research maintained its "buy" call on AirAsia with a slightly higher target price of MYR1.80 from RM1.75 previously which was pegged to an unchanged 1 time 2016 price over  price-to-book value (P/BV).
AirAsia which is upbeat on its 2016 outlook, had stated that the underlying demand is very strong and expects stronger traffic growth, with better loads and yields.
"We think the Q3FY15-Q4FY15 performance has shown that this is the inflection point, and the momentum should build going forward.
"Furthermore, the group will enjoy a giant step-down lower fuel cost as the expensive fuel hedges in 2015 (50% at US$88 per barrel (bbl)) have expired. For 2016, about 30% of its fuel requirement is hedged at US$52/bbl," Mohshin said.
He noted that AirAsia's associates are still struggling but there are signs of a turnaround.
Apart from Thailand, all the other AirAsia's associates remain loss making, although its Indian and Japanese associates' losses are much more modest, as they are in the start-up phase.
"We are assured that the associates will continue to improve in terms of yields and costs, and we forecast for the Indonesian and Philippines business having a good chance to turn around in 2016," Moshin said.
He said that 2015 was a mixed bag for the AirAsia group but most of its problems are behind it and they have crossed the inflection point.
Mohshin reckons that AirAsia's Malaysian operations will churn strong profits as it benefits from Malaysia Airlines' business restructuring, while its associates will attain the benefits of economies of scale and the maturing of existing routes, will add value to the group.
Meanwhile, MaybankIB Research revised its 2016-17 earnings forecasts for AirAsia X after the carrier returned to the black in Q4FY15 with a core net profit of RM92 million, reducing its accumulated core losses for FY15 to RM144 million versus its RM180 million core net loss forecast.
"Yields surprised on the upside and load factors were strong. We revise our 2016-17 earnings forecasts by +148% and +18% respectively on management's latest inputs and we introduce 2018 forecast," Mohshin said.
He maintains a "hold" recommendation on AirAsia X with a slightly higher target price of 23 sen from 21 sen previously, pegged to an unchanged 1 time 2017 P/BV.
Despite the positive Q4FY15 performance, Moshin cautioned that there are plenty of execution risks ahead for AirAsia X.
He noted that Malindo Air is proving to be a growing threat as it launches new flights in direct competition with AirAsia X and therefore, there is a potential of another fare war looming.
"We think the risk-reward is not yet attractive and there are many other Asian airlines with far more compelling investment case," he said.