AirAsia X upgraded to 'outperform' with higher target price

PETALING JAYA: PublicInvest Research has upgraded AirAsia X Bhd (AAX) to "outperform", with a higher target price of 53 sen from 41.5 sen previously, based on 8.0 times FY18 forecast earnings per share.

In a note yesterday, its analyst Nur Farah Syifaa' Mohamad Fu'ad said the research house expects a better performance ahead for the group and believes the positive performance will flow through from FY17 onwards.

She said this will be a result of better cost efficiencies through improvement in aircraft utilisation and increase in route frequencies, improve performance from associates, less impact on fuel price volatility, as well as lower net gearing.

"We revert our valuation methodology to price-earnings ratio, as we see its earnings recovery going forward.

"However, we have also updated accordingly our aircraft fuel price (from US$70-75 to US$65-75) and US dollar rate assumptions (from RM3.80 to RM4.30), resulting in a lower earnings adjustment of an average of 16.3% for FY17-19F," she added.

On capacity expansion, Nur Farah noted that AAX fleet size remained unchanged and the research house expects no new aircraft delivery this year.

However, she said AAX anticipates to increase its average seat km (ASK) through better aircraft utilisation, increase frequencies of current routes by strengthening its key markets such as China and Australia and potential new routes.

Meanwhile, Nur Farah said the group's yield is expected to be flat or slightly lower in the near-term, as it already achieved its three-years average.

However, she said slower capacity growth of airlines in Malaysia has helped to reduce excess capacity in the market, which resulting in a more rational competitive environment.

"This suggests a healthy improvement to bottom line going forward. We estimate AAX will temporarily be in a net cash position in FY18, though likely to reverse into net debt again once aircraft deliveries are back on the rise from FY19 onwards," she said.

Commenting on fuel hedging, Nur Farah said currently, the average fuel price in 2017 has 74% hedged at an average of US$60 per barrel, noting current Singapore jet fuel price stands at US$64 per barrel.