• Ticket prices depressed with no recovery in sight.
• Stranglehold routes under attack by Malindo Air.
• Full year profit unlikely; we cut forecasts. Maintain HOLD with a lower target price of MYR0.215.

What’s New

Malindo Air (MA) has launched many new services that encroach on AirAsia X’s (AAX) route portfolio. MA has proven to be the airline of choice due to its superior cabin products and services and attractive value proposition.

What’s Our View

We notice that low ticket prices have extended to routes to Japan, South Korea and Nepal. This could affect AAX tremendously because they are the better-performing routes in its portfolio. Still, there is much hope that MAS capacity cuts in Aug 2015 will help to lift load factors and yields from 2H15, though our analysis suggests that the benefits could be confined to Australian routes. We also see a menacing threat from MA’s launch of new services that overlap with AAX’s key markets. MA launched its Kuala Lumpur-Kathmandu service on 25 Feb; the impact is already felt. We hear from market sources that it will soon fly to Perth and Taipei. Furthermore, MA’s B737-900ER aircraft have the range to fly to all of AAX’s North Asian destinations, if it wants to. We cut FY15-17 earnings for lower yield growth, lower load factors and a weaker MYR against USD. We now forecast losses for FY15 while FY16-17 earnings have been cut by 74% and 36% respectively. Target price has been lowered to MYR0.215 (from MYR0.30), which is pegged to an unchanged 1.0x FY16 P/BV. Maintain HOLD.

Source: Maybank Research - 6 Jul 2015