AAX: Airline Posts Strong Headline Profit, Core Earnings Miss Estimates on Yield Pressures
| Investment Bank | TA SECURITIES |
|---|---|
| TP (Target Price) | RM0.25 (+25.0%) |
| Last Traded | RM0.20 |
| Recommendation |
Despite reporting a significant surge in its headline net profit for the second quarter of financial year 2025 (2QFY25), an Asia-Pacific low-cost, long-haul airline recorded a core net loss, falling short of both analysts’ and consensus expectations. The reported net profit was largely buoyed by a substantial foreign exchange gain, masking underlying operational challenges.
Performance Review
The airline announced a headline net profit of RM35.2 million for 2QFY25, a more than sevenfold increase year-on-year. This impressive figure was primarily attributed to a favourable foreign exchange (forex) gain of RM36.9 million. However, excluding non-recurring items, the company registered a core net loss of RM1.7 million for the quarter, bringing the cumulative core net profit for the first six months of FY25 to RM44.1 million.
These results significantly underperformed against expectations, accounting for only 28.0% of PublicInvest Research’s full-year forecast and 24.6% of the consensus estimate. Quarterly revenue declined by 1.2% year-on-year to RM660.8 million, despite a 6.2% increase in passenger volume and a 5.5% rise in seat capacity. The passenger load factor remained strong and steady at 83%.
The revenue decline was mainly driven by an 11.6% drop in the average passenger fare, which settled at RM405. This was partially offset by a 3.6% year-on-year growth in ancillary revenue per passenger, stemming from higher passenger volumes and enhanced product offerings, particularly in the duty-free and merchandise segments.
Operational Highlights and Challenges
The discrepancy in earnings performance was primarily due to negative impacts on yields during the quarter. This was influenced by fears from a viral social media trend, geopolitical events, seasonality, and cautious travel sentiment related to natural disasters (e.g., earthquakes, security concerns in Thailand) and a widely circulated manga predicting a natural disaster in Japan in July 2025.
Positively, the core net loss for the quarter narrowed from RM5.7 million in 2QFY24, largely due to lower aircraft fuel expenses. Cost per Available Seat Kilometre (CASK) also saw a significant improvement, declining by 13.3% year-on-year to 12.10 sen during the quarter, indicating effective cost management.
Future Outlook and Recommendation
PublicInvest Research anticipates stronger performance in the second half of FY25, maintaining its full-year forecast. The Malaysian aviation sector is expected to experience robust growth in 2H 2025, supported by improving economic conditions, government-backed tourism initiatives, competitive airfares, and expanding intra-regional travel. The airline plans to expand its network into Central Asia, with new flights to Istanbul, Turkey, and Tashkent, Uzbekistan, scheduled for the fourth quarter of 2025.
The company currently operates a fleet of 19 A330 aircraft, with 18 already operational. However, the reactivation of its final aircraft faces delays due to global maintenance, repair, and overhaul (MRO) backlogs. The investment bank expects maintenance and overhaul costs to continue trending lower, further bolstering the company’s financial health.
PublicInvest Research reiterated its Outperform call on the company with a PE-based target price of RM2.47, reflecting confidence in its future recovery and growth trajectory.
