MAYBANK Investment Bank Bhd (Maybank IB) is not so optimistic on AirAsia X Bhd and AirAsia Bhd, with the former registering net losses once again and its parent losing competitive advantage.
In its research note, Maybank IB said AirAsia X disappointed again, its forecast was already the lowest, but the actual results made it look modest.
“Yields were too low due to overcapacity. AirAsia X will reduce capacity growth in
2014-2016 by deferring and selling aircraft.
“Unencumbered cash is at an all-time low and gearing has soared to high levels at 2.1 times and there is some respite from the management’s plans to recapitalise and start a wet leasing business,” the research house said in a note to investors.
Maybank IB maintained its “sell” recommendation on AirAsia X due to business risk and complex execution challenges. Its target price was revised to 57 sen from 63 sen.
AirAsia X made a net loss of RM185 million in the third quarter ended September 30, from a RM16 million profit in the comparable quarter a year earlier.
Maybank IB said AirAsia is losing the low-cost advantage with its third quarter net income dropping 28 per cent to RM112.4 million.
“There are credible signs signalling that the market has bottomed, but expect slow yield recovery. Earnings growth is driven by lower fuel cost,” the research house said, maintaining a “hold” call with the target price raised to RM2.60 (from RM2.30) due to positive earnings revision.
“Our view from an operational point is that this is hardly the best time for the company. Capacity growth comes with a sacrifice in yields and aircraft utilisation has fallen with unit cost ex-fuel rising.
“Thankfully, fuel cost has plunged and this has provided some breathing space that the industry needs,” said Maybank IB.
The research house has revised its 2014-2016 earnings forecasts on AirAsia by 20 per cent, 15 per cent and eight per cent, respectively.