Concern over AAX cash balance
PETALING JAYA: AirAsia X Bhd’s (AAX) cash balance is dropping fast, with nearly 39% of its cash utilised in just nine months, cautioned CIMB Research.
The research house, which has maintained its “reduce” call on the long-haul budget carrier, said AAX needed to undertake a capital-raising exercise to survive.
CIMB Research’s concern emerged against the backdrop of AAX’s net loss widening by almost five times to RM197.47mil in the third quarter ended Sept 30.
AAX stock took a beating yesterday as it declined by one sen or 4.17% to 23 sen, weighed down by earnings worries.
The airline’s cash balance saw a sharp fall to RM266mil as at Sept 30, down from RM433mil at end-2017.
The plunge was primarily due to debt principal repayments of RM139mil and capital expenditures of RM163mil, which was mainly for the overhaul of eight engines in the third quarter.
“The cash balance would have been even lower if AAX had not permitted its working capital balance to reduce by RM154mil over the past nine months.
“As such, a capital-raising exercise will be vital, particularly with continued strength in jet fuel prices and the weaker ringgit and rupiah,” it said, adding that it has cut its target price for the stock to 12 sen from 16 sen earlier.
On AAX’s recently-announced financial results, CIMB Research said the core net loss of RM77mil in the first nine months of financial year 2018 (FY18) was 94% of its last full-year loss forecast.
The bottom line also stands in contrast to consensus’ core net profit forecast of RM4.6mil for FY18.
“This was due to weaker-than-expected yields and higher depreciation,” it said.
Meanwhile, MIDF Research said in a note that AAX would likely see a rebound in earnings in its current fourth quarter.
“So far in the fourth quarter, Brent crude oil price has dropped by about 26% to hover around US$60 to US$65 per barrel in contrast to the 7.4% rise in the third quarter.
“We believe jet fuel prices will follow suit and AAX will be able to reap benefits by hedging its jet fuel requirement more, moving forward,” it said.
On the low-cost carrier’s prospects, the research house said recovery is on the horizon as core routes started to gain better traction, in addition to the newer ones.
It added that AAX has exercised prudence by shifting some of the future capacity into other core markets – Japan, South Korea and India – to factor in the slower growth from the China segment.
“Consequently, we believe further improvement in cost structures such as flights to more cost-effective airports namely Avalon Airport, Melbourne, could sustain earnings in the long run,” it said.
MIDF Research has reiterated its “neutral” call on AAX, and adjusted its target price to 22 sen from 26 sen previously.
Source: TheStar