AAX: Airline Exceeds Expectations on Robust Cost Management, Target Price Raised
| Investment Bank | TA SECURITIES |
|---|---|
| TP (Target Price) | RM0.25 (+25.0%) |
| Last Traded | RM0.20 |
| Recommendation |
A leading long-haul, low-cost airline has significantly surpassed market expectations for its financial performance, driven primarily by effective cost management and operational efficiencies. The company reported a core Net Operating Profit (NOP) of RM2.80 million for the first half of 2024, markedly outperforming a consensus forecast of a RM5.54 million loss. This strong showing continued into the second quarter of fiscal year 2024, with the NOP of RM2.80 million far exceeding the projected loss of RM3.5 million.
Performance Review
The impressive results are primarily attributed to a substantial reduction in operating expenses, facilitated by the normalization of maintenance costs and favorable fuel prices. Furthermore, strategic network optimization played a crucial role in lowering costs, while a boost in ancillary revenue contributed positively to the overall financial health. The company’s revenue also saw a year-on-year increase, reflecting a recovery in passenger and ancillary income.
Challenges and Market Dynamics
Despite the strong financial performance, the airline faced softer utilization rates in certain periods, particularly in Thailand during the second and third quarters, which impacted revenue generation in those specific markets. This highlights the ongoing need for dynamic market adaptation.
Future Outlook
The outlook remains robust, with the airline’s strong order book extending through 2026. Management expects to capitalize on the upcoming holiday season and sustained forward bookings across its core markets. Strategic initiatives include accommodating new aircraft into its fleet, increasing flight frequencies, particularly to Europe, and leveraging expanded Evisa access for passengers from China and India. The company aims to maintain a strong load factor and pursue further capacity growth, including plans to establish affordable flights to London, further solidifying its position in international long-haul travel.
Analyst Recommendation
Reflecting the solid operational execution and promising future prospects, Public Investment Bank Berhad has maintained an “OUTPERFORM” rating on the company’s shares, with a revised target price of RM0.25. This target price suggests a significant upside potential of 25.0% from its last traded price of RM0.20, reinforcing confidence in the airline’s continued growth trajectory.
