CAPITALA: Core Earnings Beat Expectations on Cost Efficiencies, Outlook Remains Strong

A major regional player in the aviation and digital services sector delivered a substantial turnaround in its third quarter of financial year 2025 (3QFY25) core net profit, significantly exceeding analyst and consensus expectations. The robust performance was primarily driven by stringent cost efficiencies and improved operational leverage across its diversified business units, despite a marginal dip in overall revenue.

Performance Review

For 3QFY25, the company reported a headline net profit of RM695.4 million, a 57.6% year-on-year decline largely attributed to unfavorable foreign exchange movements, contrasting with a substantial forex gain in the prior year’s corresponding quarter. However, excluding these exceptional items, the core net profit stood at an impressive RM271.3 million. This marks a dramatic reversal from a core net loss of RM69.3 million in 3QFY24 and more than triples the core profit from the preceding quarter. The cumulative nine-month core net profit of RM489.9 million aligned well with both the investment bank’s and market consensus full-year forecasts.

Group revenue for the quarter marginally decreased by 2.4% year-on-year to RM4.8 billion. This was mainly due to lower contributions from its aviation unit (-1.7% YoY) and the Digital and other division (-32.5% YoY). Despite the revenue dip in the aviation segment, its net operating profit turned positive at RM263.7 million, a significant improvement from a RM42.0 million loss a year ago. This positive shift was primarily due to strong cost efficiencies, robust ancillary growth, lower fuel costs, and favorable ASEAN currency movements. Notably, the Cost per Available Seat Kilometer (CASK) declined by 14% to 18.74 sen.

Beyond aviation, the non-aviation segments also demonstrated robust growth. The logistics arm, Teleport, reported a net profit of RM8.3 million, a significant year-on-year improvement, benefiting from operating leverage and strong revenue growth. Similarly, the engineering unit, Asia Digital Engineering (ADE), achieved profitability with a net profit of RM23.0 million, a substantial swing from a previous loss, driven by hangar expansion, increased third-party customer base, and reduced interest expenses.

Challenges and Headwinds

The headline performance was significantly impacted by the absence of a large forex gain seen in 3QFY24 and a forex loss of RM113.3 million in the current quarter. Operationally, the weaker tourism sentiment towards Thailand led to lower average fares as the company shifted towards more domestic segments. Passenger numbers dipped marginally by 1%, and while capacity increased by 5%, the load factor remained steady at 83%.

Future Outlook and Recommendation

The outlook for the company remains positive. The aviation unit is expected to continue benefiting from a strengthening Ringgit and anticipated lower jet fuel prices. Furthermore, the ongoing reactivation of its grounded fleet and loan refinancing efforts are set to provide additional financial flexibility. The non-aviation units, including Teleport and Santan, are projected to sustain their growth momentum and contribute more significantly to the group’s performance in upcoming quarters.

The company’s regularisation exercises, aimed at exiting the Practice Note 17 (PN17) classification, are nearing completion, with the latest target set for the end of December 2025. This plan includes the disposal of its aviation business and a capital reduction exercise. The completion of a RM1 billion private placement remains a key outstanding condition.

Given the strong core operational turnaround, sustained cost discipline, and positive outlook across its diversified segments, the investment bank reiterates a BUY recommendation, with an indicated target price of RM0.25.