CAPITALA: Performance Surpasses Expectations on Robust Cost Management, Future Prospects Improve
| Investment Bank | TA SECURITIES |
|---|---|
| TP (Target Price) | RM0.25 (+25.0%) |
| Last Traded | RM0.20 |
| Recommendation |
Financial results for the first half of 2025 (1H25) indicate a strong performance, with core profit significantly exceeding analyst expectations. The company reported a core profit of RM801.7mn for 1H25, achieving 81% of the full-year forecast, largely attributed to lower-than-expected finance costs.
Performance Review
Despite a flat revenue growth during the period, the adjusted core profit saw a remarkable three-fold year-on-year increase to RM801.7mn for 1H25. This robust performance was primarily driven by substantial cost efficiencies, including a 13.7% reduction in fuel costs, an 18.1% drop in Maintenance, Repair, and Overhaul (MRO) expenses, and a 50.2% decrease in depreciation. These cost savings more than offset increases in staff and finance costs. The average jet fuel price also declined by 10% year-on-year for 1H25.
In the non-aviation business segment, adjusted LBITDA and LBT narrowed by 9.9% and 3.6% year-on-year, respectively, reaching RM250.9mn and RM406.1mn. This improvement was a result of stronger performances from ADE (MRO services), Teleport (logistics), and Santan (in-flight F&B), all benefiting from increased business volume.
Future Outlook and Challenges
TA Securities has revised its FY25-26 earnings projections upwards by 26.7-28.2%, following a reassessment and reduction of finance cost assumptions. The company’s 1H25 revenue and EBITDA figures of RM10.1bn and RM2.2bn, respectively, were in line with its ambitious FY25 targets of RM25.5-28bn and RM4.5-5.4bn.
While the reduction in fuel prices and positive foreign exchange movements have provided a buffer against airfare pressures, the market remains cautious. Airlines continue to add capacity, leading to intense competition. Analysts are closely monitoring the airfare pricing trend, noting that Revenue per Available Seat Kilometre (RASK) declined to 20sen/ASK in 2Q25, down from a peak of 24.4sen/ASK in 1Q24. Irrational pricing in the region could impact profitability in 2H25 and 2026.
Regarding corporate restructuring, management anticipates the disposal of its aviation business and the completion of its regularisation plan by November 2025.
Valuation
TA Securities maintains its “BUY” recommendation for the company. The investment bank has raised its target price to RM1.60 per share, based on 8x CY25 EPS, applying a 40% valuation discount due to the company’s PN17 status not yet being lifted.
