AirAsia X set to be profitable in FY20, says MIDF

KUALA LUMPUR (Nov 14): AirAsia X Bhd (AAX) is expected to become profitable in the financial year 2020 (FY20) following a stronger take-up of ancillary offerings, especially with the expected introduction of WIFI onboard its fleet, MIDF Research said.

“While the freight services segment was lower at -4.2% year-on-year in the first nine months of FY19, we opine that revenue will improve following the commencement of Teleport.social in the fourth quarter of 2019 (4Q19), which enables sellers on social media to integrate with Teleport’s logistics infrastructure.

“In essence, the platform itself will eliminate the need for online sellers to migrate to a specific market platform to sell their product,” the research house said in a note today.

However, for FY19, MIDF Research forecast a loss of RM209.1 million in view of AAX’s capacity cuts, which is expected to continue until year-end.

“That said, we are maintaining our FY20 forecast earnings at this juncture as we anticipate AAX to break even by 1Q20 and recording profits thereafter following cost reduction initiatives via digitalisation, negotiation for lease rates reduction and the addition of short haul routes to maximise aircraft utilisation,” it said.

Moreover, Federal Aviation Administration’s move to downgrade Malaysia to category 2 allowed AAX to consider new routes in existing core markets, namely North Asia, and also new markets such as Europe.

The research house maintained a “neutral” call with an unchanged target price of 17 sen per share.

Meanwhile, another research company, Affin Hwang Capital has downgraded the company to “sell” from “hold”, following AAX’s disappointing 3Q19 results.

Yesterday, in a filing with Bursa Malaysia, AAX reported a net loss of RM142 million for the quarter due to weaker operating profit, accounting impact from the adoption of Malaysian Financial Reporting Standard 16 and high taxation.

“We cut our 2019-21 earnings per share to reflect the challenging market conditions, as seen by AAX’s weak operational statistics,” it said, setting the target price at 10 sen from 16 sen.

At noon, AAX shares slipped one sen to 16.5 sen with 13.92 million shares transacted.

Source: TheEdgeMarkets