RHB initiates coverage on Air Asia X with 'buy', TP of RM1.65

RHB initiates coverage on Air Asia X with 'buy', TP of RM1.65
Business & Markets 2013
Written by Shalini Kumar of theedgemalaysia.com
Monday, 05 August 2013 12:09

KUALA LUMPUR (Aug 5): RHB Research is initiating its coverage on Air Asia X Bhd (AAX) with a 'buy' rating and a target price of RM1.65, as it sees the recent initial public offering (IPO) as timely for investors to ride on the company’s next leg of growth.

AAX’s strengths lie in two crucial elements: operating at the lowest possible unit cost and churning up high passenger volume.

The higher aircraft utilisation not only maximises revenue, but also lowers the cost per seat, which in turn helps it minimise overall unit cost as it handles more passengers and traffic.

"What AAX currently lacks, however, is the scale to emulate the success of sister company, AirAsia. Hence, the recent IPO is a timely move in taking this long haul LCC to its next stage of growth, during which it will enlarge its fleet and achieve the scale it needs to propel earnings," it said in a note today.

Being the only long haul low cost carrier (LCC) operator in Malaysia, AAX has not only been able to take market share from the full service carriers, but also successfully stimulated passenger traffic in the routes it operates.

"The airline has picked Bangkok as its new hub, in tandem with its vision to be a leading long haul LCC. Together with other carriers in the AirAsia group, it is working towards building the world’s first multi-hub long haul LCC network," said RHB.

"We foresee robust earnings compound annual growth rate (CAGR) of 136% from FY12 to FY15, fuelled by rising passenger traffic as AAX expands its fleet, enhances yield and launches new ancillary initiatives," said the research house.

"Moving forward, the company’s rising economies of scale owing to fleet expansion should further pare down unit costs," it added.
At 11.48 am, AAX was trading 2 sen higher at RM1.22, with 27.8 million shares done.