AAX: Core Earnings Rebound on Cost Control, Analyst Maintains Buy Rating

An airline group has reported a significant turnaround in its core net profit for the third quarter of fiscal year 2025 (3QFY25), reaching RM8.9 million. This marks a stark improvement from a core net loss of RM3.7 million in the same period a year ago. Despite this, the reported headline net profit for the quarter saw a substantial decline of 77.2% year-on-year to RM27.8 million, largely due to the absence of foreign exchange gains that boosted prior results. Cumulatively, the nine-month core net profit stands at RM53.0 million.

While the overall results fell short of both internal and consensus estimates, the positive momentum in core operations, driven by strategic cost efficiencies, has led TA Securities to maintain a “BUY” recommendation for the stock, with a target price of RM0.25, implying a 25.0% upside.

Performance Review

The group’s revenue for 3QFY25 experienced a marginal increase of 1.1% year-on-year, reaching RM803.5 million. This growth was achieved despite a reduction in passenger volume and seat capacity by 5.1% and 2.9%, respectively. The revenue uplift was primarily attributed to an increase in the average passenger fare to RM466 and an 11.0% rise in ancillary revenue per pax, which was boosted by robust duty-free and merchandise sales. The passenger load factor remained healthy at 82%, a slight decrease from 85% in 3QFY24. Crucially, the positive core profit was largely driven by a significant reduction in aircraft fuel expenses, with the Cost per Available Seat Kilometer (CASK) declining by 9.3% year-on-year to 12.68 sen for the quarter, highlighting effective cost management.

Challenges and Market Outlook

The decline in headline net profit was primarily due to the absence of substantial foreign exchange gains recorded in the previous year. Furthermore, the overall performance falling below expectations points to a weaker-than-expected air travel demand growth and yield environment. Operational challenges include delays in the reactivation of the final aircraft in the fleet, impacted by global maintenance, repair, and overhaul (MRO) backlogs.

Looking ahead, the group anticipates that the fourth and first quarters will benefit from the peak holiday season, supported by encouraging forward bookings across its core markets. To meet the expected surge in travel demand, additional weekly frequencies are planned for routes to Australia and East Asia. The route network continues to expand, with recent maiden flights to Tashkent, Uzbekistan, and Istanbul, building on the success of its Almaty route. The group maintains a fleet of 19 A330 aircraft, with 18 currently operational.

Corporate Developments and Investment Rating

A significant corporate exercise is nearing completion, with the merger of Capital A’s aviation arm into the group targeted for the end of December 2025. All preconditions for the deal have been met, rendering it unconditional. This strategic move is expected to create a larger, more streamlined aviation group, enhancing scale and operational synergy.

In light of the positive core earnings turnaround and strategic initiatives, TA Securities has reiterated its “BUY” recommendation for the stock. The revised target price of RM0.25 reflects an anticipated 25.0% increase from the last traded price of RM0.20, indicating continued confidence in the group’s long-term prospects despite recent shortfalls.