Analysts slash AirAsia X earnings forecast on poor Q3 earnings showing

PETALING JAYA: Affin Hwang Research has maintained its "sell" call on AirAsia X Bhd (AAX) with a target price of 45 sen from 65 sen previously as it lowered the long haul budget airliner's forecast to losses instead of profit.
Analyst Sharifah Farah said AAX's core net loss of RM333 million in the nine months ended Sept 30, 2014 came in "grossly" below Affin Hwang's and market estimates on lower-than-expected average fare and higher fuel cost.
She said AAX reported a larger-than-expected core net loss of RM176 million in Q3'2014 compared to RM4.3 million profit in Q3'2013, widening its nine months core net loss to more than 100% from a year earlier.
"This was grossly below our and street estimates. The discrepancy against our forecast was mainly due to lower-than-expected average fares as well as higher fuel cost which was US$132/barrel vs our assumption of US$120/barrel," it said.
As part of its business turnaround plan, Affin Hwang said AAX is implementing three main strategies which are capacity management, namely deferring aircraft delivery and redeploying capacity; raising cash via sale of aircraft and implementing sale and lease back option instead of owning aircraft; and cost cutting through amongst others, some consolidation of backroom office with AirAsia.
"We are cutting our FY14-16 forecasts from a profit to loss position after i) lowering average fare assumption by 5%, ii) raising 2014 fuel price assumption to US$130/barrel (from US$120/barrel) and iii) imputing a higher lease rental expenses," Sharifah said.
Following the downgrade to losses, Affin Hwang lowered AAX's target price to 45 sen, based on an unchanged FY15 price to book value ratio (P/BV) multiple of 1.3 times.
"(Changes) to recommendation include better-than-expected yields, which would results in a quicker-than-expected turnaround. This looks unlikely in the near term given the keen competition, especially within the long-haul routes," she said.
Public Invest Research also slashed AAX's FY14F-16 earnings to reflect the overall group's weaker performance.
The research firm maintained its neutral call on AAX with a lower target price of 69 sen from 79 sen previously following the revision in earnings.
"We maintain our neutral call on AAX amid uncertainty over the restructuring plans on Malaysia Airline Systems Bhd (MAS), hence the pressure on fare may still possibly affect the earnings for the FY14F-16,"
"We anticipate AAX will positively benefit from lower fuel prices and MAS' restructuring strategy which may see it likely cutting down capacity in its loss-making route," it added.