KUALA LUMPUR, Aug 29 — AirAsia Group Bhd’s shares fell in the morning session today after reporting weaker second quarter financial year 2019 results.

At 11.16am, the budget carrier’s shares fell seven sen to RM1.73 with 8.6 million shares traded.

Public Investment Bank in a research note today said AirAsia reported a lower net profit of RM17.3 million in the second quarter, mainly due to the recognition of prior year share of associates’ losses, not recognised for AirAsia India (AAI) of RM147 million.

“Also, after excluding other one-off items including foreign exchange gain, fair value gain on derivatives and deferred tax, its core net profit for the first half of financial year 2019 stood at RM11.6 million which was below our and consensus’ full year expectations, accounting only for 2.6 per cent and 1.7 per cent respectively,” it said.

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It said the discrepancy was mainly due to higher-than-expected finance costs from the Malaysian Financial Reporting Standard 16 (MFRS16) impact.

However, AirAsia’s earnings before interest, taxes, depreciation, and amortisation was within the full year estimates at 48 per cent of the investment bank’s forecast.

Affin Hwang Investment Bank in a separate note said AirAsia operated 146 aircraft in the second quarter, a 22 per cent increase from 124 units in the same quarter last year, translating into a 19 per cent year-on-year increase in seat capacity and a 17 per cent increase in available seat kilometres (ASK).

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“While the management did a commendable job in filling up the planes with a load factor of 85 per cent in the second quarter versus 86 per cent in the same quarter last year, the higher supply of seats, coupled with competition from peers, capped AirAsia’s revenue per ASK (RASK) growth at four per cent year-on-year, which lagged the 15 per cent growth in cost per ASK(CASK),” it said.

It said higher maintenance costs (up 105 per cent year-on-year) arising from accounting treatment for the aircrafts under sales and leaseback arrangements also contributed to the hike in CASK.

“All in, we expect the tough operating environment to persist in the third quarter before subsiding in the fourth,” it added.

MIDF Amanah Investment Bank in another note said AirAsia’s older fleet would be replaced with new Airbus A320neo and A321neo starting in November 2019.

“These aircraft have advanced fuel-efficient technology which will lead to an estimated fuel savings of 15 per cent by financial year 2020, translating into lower cost per seat with 50 additional seats,” it said.

The investment bank said passenger growth in Malaysia is also expected to remain intact despite the departure levy which is scheduled to take effect in September 2019 as the levies gazetted are lower than regional peers such as Thailand and Hong Kong.

“As for low cost carriers such as AirAsia, the percentage of departure levy from the total ticket price is still immaterial at around 1.6 per cent on average for normal fares,” it said.

It added that a further re-rating catalyst for AirAsia would be a favourable review in the passenger service charges by the government.

Public Investment has retained the “neutral” recommendation on AirAsia, but reduced the target price to RM1.89 from RM2.33 previously.

Affin Hwang has downgraded AirAsia to a “hold” call from “buy” and lowered the target price to RM1.87 from RM3.35 previously.

MIDF Amanah has maintained a “buy” call on AirAsia, but revised downwards its target price to RM2.08 from RM2.39. — Bernama