How Soon will AAX Turn Around?

Predicting Better Times

If you read what CEO Azran has to say, you may want to have a re-look at this stock. After all it has  lost almost all its shine off its IPO price of RM1.25 . Currently it is trading at just below 80 sen, for a loss of 45 sen.(36% loss )

Let us look at this latest article on AAX from THE STAR On-line.

"Could it be time to relook at AirAsia X Bhd? This long-haul, low-cost affiliate carrier of the AirAsia Group will be turning around in the second half of the year. Very likely in the third quarter to Sept 30 too.

That’s not all. The viability of AirAsia X flying to favoured destination London appears much stronger than before.

For the better part of this year, the hype and bluster on AirAsia X has died down significantly, following the announcement of two straight quarters of losses.

Long before that, the cancelling of the popular London and Paris routes in 2012 had already cast aspersions on the low cost carrier’s model.

Perhaps flying long haul for a low cost carrier was never viable in the first place.

Not surprisingly, its share price has been heading south, down 16.5 sen to 83 sen on a year to date basis.

It’s also 25.6% or 42 sen down from its initial public offering (IPO) price of RM1.25.

Even during the day the company was floated in July 2013, its share price never performed. The stock finished the day just 2 sen above its IPO price.

Were many already lacking faith for low cost long haul flights at that point?

Over the week, rumours of a merger between Malaysian Airlines Systems Bhd (MAS) and AirAsia X intensfied, as many speculated that a privatisation of MAS would fuel some kind of a tie-up.

On Thursday, Khazanah issued a statement quashing the rumours, saying that the media reports were unfounded and speculative.

Launched in 2007, AirAsia X competes with the likes Singapore Airlines’ Scoot and Qantas Airways’ Jetstar. Its biggest shareholder is the Tune Group with a 17.83% stake while AirAsia Bhd owns a 13.76% stake.

AirAsia X currently serves 19 destinations across Asia, which mainly consist of Japan, Taiwan, China and Australia. It also flies to Jeddah and Kathmandu,raking in a profit in the second half.

During the Farnborough Airshow in London, AirAsia X chief executive officer Azran Osman-Rani confidently said that AirAsia will be turning around in the second half of the year.

Analysts say there is a strong likelihood that this will happen in the upcoming third quarter results.

What’s more, now that AirAsia X has signed a memorandum of understanding (MoU) with Airbus to buy 50 ‘energy efficient’

A330Neos for US$13.8bil with an additional 50 purchase rights, this allows AirAsia X to once again revisit flying to London - the unspoken compulsory route needed for traveller endorsement.

The deliveries will take place between 2018 to 2024.

The key feature of the A330neo is that it is able to save fuel consumption by 14% compared with the normal A330. This makes it the most efficient, medium range wide-body aircraft in the market.

Apart from expanding AirAsia X’s fleet size, the new A330NEO will be used to replace some of its existing aircraft which will be 12 years old by 2020.

On turning around, Azran first explained that the low cost carrier model for long haul flights is viable.

“The losses had nothing to do with an unsustainable business model but was due to the typical start up costs related with setting up a new business,” he says.

“For every new route AirAsia X goes into, there will be an average of a 12-month start up losses incurred. AirAsia X will be turning around because we are reaching the end of that 12 month period for many of our routes,” he explains.

Some may say that AirAsia X is walking on egg shells with its borrowings of RM1.66 bil and cash position of RM75.08mil as of March 31. However, the airline business is a lot more capital intensive than other sectors.

Azran says that when a company starts a new business, it would have to invest in new capacity, stimulate demand and throw in promotions to fill up the flight. All these were typical start up costs invested by AirAsia X in the last two years.

AirAsia X has been expanding aggressively in the last one year.

To its credit, it has carried th most number of passengers to North Asia in 2013. The north Asian markets consist of China, Korea, Japan and Taiwan.

Looking at its first quarter to March 31, 2014, the statistics for the expansion are very telling.

Its average seat kilometre (ASK) which is the number of seats per kilometre, increased 60.12% to to 6.22 million from 3.89 million in the previous period.

Heavy discounting was seen in average passenger fares, which dropped to RM467.11 from RM623.53 previously.

The total number of passengers carried over the three month period increased 66.9% to 1.08 million from 647.366 passengers.

Thus, load factor improved to 85.8% from 84.2% previously.

This resulted in AirAsia X recorded losses of RM11.28mil from a previous profit of RM50.2mil for its first quarter to March 31, 2014. This was on the back of a 40% increase in revenue to RM749.48mil.

The carrier consumed 930,616 barrels of jet fuel for this period, a 72.4% increase from 539,676 consumed previously.

“The increase of AirAsia X’s capacity in its Australian routes as well as capacity expansion by its competitors had led to major losses in the fourth quarter of 2013 and the first quarter of 2014,” says MIDF analyst Chua Boon Kian.

He points that tourist statistics during the first quarter showed a healthy growth trend in arrivals, particularly from South Korea, which registered a 37% year-on-year increase and 19% jump from visitors from Australia.

“If Malaysia Airlines exercises capacity restructuring by the end of FY14, AirAsia X will be able to recoup some of its earlier losses through the recovery of fare yield in the second half of 2014,” he said.

Thus, Chua maintains a “buy” stance on AirAsia X with unchanged target price of 96 sen, premised on an FY15 price earnings ratio of 10 times.

Cheap flights to London again?

AirAsia X had previously flown to Paris and London, offering connections from its Australian routes, but halted serving the routes in 2012.

During the Airshow, AirAsia X co-founder and director Tan Sri Tony Fernandes said that with the orders for the A330NEO,this is a huge sign that it will only be a matter of time before an AirAsia X operates in Japan and India.

With AirAsia X in India, Fernandes added that AirAsia X can then fly to Africa and London, with Bangalore being a big hub.

Meanwhile from Japan, it can start flying to South America.

“Now that we have the A330NEO, it certainly makes London a whole lot more viable. We learnt from our old mistakes. The last time we didn’t have the support and it wasn’t aggressive enough. The rule of thumb is to have 20/30 short haul planes as a feeder, to make the long haul attractive and use it as a base,” says Azran.

Chua says that the longer range capability of A330NEOs will be more fuel-efficient for AirAsia X to resume its European route and the possible opening up of the US west coast route by 2018. “As the Asean region’s income per capita continues to grow, we believed that demand for leisure travel, especially for long haul destinations, should grow simultaneously,” he says.

This year, AirAsia X will take delivery of seven aircraft, hence bringing its fleet size to 23 Airbus A330-300s by the end of this year.

AirAsia X will take delivery of between seven and eight planes yearly.

Azran adds that AirAsia X started operations in Thailand earlier this year. For the first three months, it has already recorded a load factor of 88%. AirAsia X’s Indonesian affiliate will start operations later this year."

MAS-Double Jeopardy

Luck Changer Wanted

Called it what you may.

Bad luck;  bad fengshui, bad management, karma.

You asked for it, MAS! or whatever.

Losing two wide-bodied jets within 4 months is statistically improbable but it has happened.

What a crying shame.

After playing Russian roulette in the Ukraine, there is again rumour that another MAS flight traversed war-torn Syrian airspace.

Are we pressing our luck too far?

So what now is the strategy for MAS, in the midst of tragedy?

MAS apparently has only two ways to go.

The unpalatable one is to go under bankruptcy which will have a political backlash and unemployment to the loyal employees of MAS.

As  for its senior executives and Board of Directors which should rightly be, they should resign en-bloc before they get the big boots!

The second way is easier on everyone. Khazanah should immediately mount a takeover by taking over the remaining 35% of the shares it does not own.

At today's price of RM 0.205 it amounts to somewhere close to RM 1 billion which is chicken feed for the sovereign fund.

By taking it off the listing on Bursar, it can then take time to privatised it and to do whatever corporate surgery that it wants.

The thing to do is to make sure only those who are meritorious get to helm MAS and to turn it around in double quick time.

Zero Moustafa-Not Quite

A Fictional Fantasy Between the Wars

The Grand Budapest Hotel is superb story-telling.

The way the story is unraveled is artistically done  so that the audience can savour every bit of its incandescent story-line.

It is intrinsically a story of of two lobby boys who became concierges and then owners of the same hotel in two different periods and their experiential adventures. While Gustav H, the senior lobby boy has superb hospitality skills and provided specialised services for  aged wealthy women thus earning their continuing patronage to the hotel, Zero Moustafa was the simpleton refugee that finally inherited the Grand Budapest Hotel. His life, however, lacks the splendour of Gustav H and was a long unending life of tragedy.

The thrills and spills are all here in this comedic thriller. Do see it.

Lending credence to this US-German effort are Ralph Fiennes as Gustav H, F. Murray Abraham as Zero, Adrien Brody as Dmitri,Jeff Goblum as Kovac, Bill Murray, Saoirse Ronan  as Agatha and Tilda Swinton as Madame D.

MAS-Looking for the Golden Key to Unlock Assets

A No Hope Situation for MAS?

This is the Malaysian Insider report of the AGM  of MAS held today.

"Stung by criticism, nine non-executive directors of Malaysia Airlines (MAS) today decided unanimously to return the fees paid to them last year, amounting to RM396,000.

MAS chairman Tan Sri Md Nor Yusof told a press conference that the non-executive board members had agreed to return the money to the airline.

It had been previously reported that many high-ranking civil servants were also sitting on the boards of government-linked companies.

The Malaysian Reserve had reported that Putrajaya was looking to ensure that active civil servants did not become board members of GLCs.

Performance and Management Delivery Unit (Pemandu) chief Datuk Seri Idris Jala had reportedly said civil servants sitting as GLC board members faced potential conflicts of interest.

MAS board member Tan Sri Irwan Serigar Abdullah is also Treasury secretary-general and chairman of Cyberview Sdn Bhd, the master developer of Cyberjaya.

Md Nor also said that there had been calls from shareholders for the immediate resignation of the board and MAS management.

"It is only natural for the shareholders to be angry considering how events have unfolded.

"However, we have tried to explain to the shareholders that MAS has been facing chronic difficulties over the past 15 years,"  he said.

Meanwhile, MAS group chief executive officer Ahmad Jauhari Yahya refused to confirm or deny that filing for bankruptcy or retrenching staff were among the possibilities they were exploring.

He refused to answer questions, saying that the airline was looking at all options.

"We are looking at all options, I am not going to answer 'yes' or 'no'," he said at a press conference when asked whether MAS was mulling bankruptcy.

The press conference, at the MAS training centre in Kelana Jaya, was held shortly after the end of the annual general meeting.

The media were not allowed to attend the annual general meeting but it was understood to be a fiery affair due to MAS's balance sheet.

Md Nor said the impact of missing Malaysia Airlines flight MH370 had been widely disseminated by the media, both local and international.

"We have reached a critical point in our efforts to return Malaysia Airlines back to a stable footing," he admitted.

"The loss of MH370 means that MAS also has to grapple with perception and a loss of confidence in the airline.

"Although unjustified, we are determined to rebuild the brand," Md Nor said, adding that 2013 was not a good year for the airline.

But he was confident that all was not lost, saying MAS, like the national flag and the hibiscus flower, was a national icon.

"We are Malaysia's embassy on wings, as we carry the nation's name every single time one of our flights is in the air," he said.

"These are factors which must be taken into consideration," he told the press conference.

Ahmad Jauhari said despite its appalling balance sheet, Malaysia Airlines still had strong assets.

"We have a world class engineering team, we have award-winning crew, a very young fleet," he said, adding these were all genuine tangible factors.

Ahmad Jauhari said they were looking at putting more seats on the existing Boeing 777 fleet, or densing up in aviation parlance.

"Studies have shown that we will be able to recoup the costs within six months," he said, adding it would boost the balance sheet.

Ahmad Jauhari had earlier told the media that MAS was looking to retire its entire fleet of Boeing 777 aircraft within a three-year period.

However, he said as MAS was able to recoup the cost of adding more seats to the Boeing 777 aircraft within three months, they would proceed with that initiative. – June 25, 2014."

A Bashing Time at the MAS AGM

MAS's CEO Ahmad Jauhari - Biting the Bullet!

Tumultuous is the word here to describe the MAS AGM held today.

The minority shareholders really showed their temper at the Board of Directors who were 100% in defensive mood; admitting inefficiency and a poor performance irrespective of the MH 370 tragedy.

While the Chairman noted the anger of the shareholders, the latter retorted they were more sad than angry at the continuing saga of the poor financial performance of the airline and its share price.

As the investment banks' negative appraisal of the stock continue to force the price down, Khazanah's untimely statement that they will be reviewing MAS's position in a time-frame of 6 to 12 months only, was badly-timed and a real bummer.

Comments like the whole board should be summarily dismissed;that they should only be paid RM 1 allowance only as well as fixing KPI's on all of them were part of the biting rantings.

Kinibiz has this to report.

The MAS annual general meeting (AGM) was extended by two hours today after a poll vote was called to decide on a resolution concerning directors’ fees.

On chairperson Md Nor Yusof’s insistence, voting was switched from a show of hands to a poll vote. Under a poll vote, shareholders’ votes are counted based on the number of shares held.

The resolution to “approve payment of directors’ fees amounting​ to RM396,000 per annum for the financial year ended December 2013” eventually passed with 79 minority shareholders voting for the resolution and 70 against. Those going against represented 0.07% of all shares held.

However, in an unexpected development, non-executive directors  chose not to accept the directors’ fees after conceding that the board’s performance during 2013 was poor.

Shareholders had earlier expressed deep dissatisfaction, going as far as to call for top management to resign.

The AGM ended at close to 3 pm.

There was certainly a leaf of experience to be learnt from this meeting for all Board members in general .

It's not all ice-cream and cherry pie helming a public listed company that cannot perform!

Foreign Fund Managers Pursue Aeon

The Ubiquitous Aeon Sign

To best the competition, Aeon Co (M) Bhd will now diversify into electronic and furniture stores.

Aeon Malaysia formed a joint venture with Thailand’s furniture retailer Index Living Mall Co in September to set up shops in Malaysia

Aeon's focus thus far is on enlarging its domestic operations through shopping centers, department stores and pharmacies in the country.

According to Aeon, this strategic move is driven by competition in the retail industry and changing consumer behaviour. According to its spokesman, there is an ample increase in retail space in 2013 and it’s going to increase further in the next two or three years. 

Aeon’s competition in Malaysia includes Tesco Plc, the UK’s largest grocer.

Retailers in the Southeast Asian nation are seeking new ways to lure customers as price increases on fuel, power and sugar slow private consumption. Aeon Malaysia plans to spend RM 1.4 billion (US$435 million) this year and next to open more stores and refurbish existing ones as it prepares for a goods and services tax that it says may hurt sales for three months after implementation in April.

Private-sector consumption expanded 7.1 per cent in the first quarter from a year earlier, after climbing 7.4 per cent in the last three months of 2013, according to BNM data. 

“Aeon Malaysia has been one of our core holdings for the past 15 years,” said Gerald Ambrose, managing director of Aberdeen Asset Management Sdn Bhd, which owns shares in the stock. “The company does seem to have the ability to grow their business.”

Shares of Kuala Lumpur-based Aeon rose 1.9 per cent at 11.52 am local time, extending gains for a seventh day. The stock is headed for its highest close since June 4, 2013. It earlier surged as much as 4.6 per cent. Stock purchases on Aeon were mainly from foreign funds.

Aeon shares went down to a low of RM 3.69 after it ex-all and found sustainable traction recently above RM 3.80. It has been advancing ever since due to new fund  interests. 

The ex-all theoretical  price was RM 3.75 . At today's price of RM 4.23, a shareholder of 4000 shares ex, would have made a clean profit of  RM  1,6,92 if he sells. 

If Aeon shares are chased upwards to RM 5 in the next few weeks, then our shareholder would have gained RM 5,000;an equivalent return of 33% within 60 days.

Powering On Through ITC As Well?

After investing more than two billion ringgit in building up the 4G infrastructure, product development and network, YTL Communications(YTLC) expects to incur only a limited capex when it rolls out its Long Term Evolution (LTE) technology soon.

According to its CEO, Wing K Lee, the current 4G WiMAX network has been  'future-proofed' as they have built a flat IP network enabling any IP-based technology to just plug in.

He said the company will not be abandoning its WiMax service which it has adopted since November 2010 to roll out its LTE technology. "No, we will not be migrating away from WiMax. Instead we will work hand-in-hand with LTE," he said.

Wing said YTLC's 4G network which covers 85% of the population with over 4,000 base stations, has proven to be robust and will continue to serve its customers well.

He added further that while the mobile WiMAX network has delivered favourable economics, adding LTE to its network would allow for an expanded array of device and service possibilities.

YTLC has completed trial runs and will be rolling out its LTE soon, without giving a definitive date.

Howevert, Wing was reluctant to reveal which LTE variant YTLC is planning to adopt except to say it is
a "newer version".

Wing had previously said that he liked the Time-division-LTE (TD-LTE) spectrum as it is more flexible and efficient compared to Frequency Division Duplex (FDD) spectrum, which is a different standard of LTE 4G technology.

He said the latest version offers faster speed, higher network capacity and at the same time present better quality of Internet multimedia experience.

Wing assured that  YTLC should be in a good position to be the first company in Malaysia to launch the newer version of LTE.

"We are looking for the right time and point of entry to launch the new version of LTE," he said.

YTLC will collaborate with Asiaspace Broadband Sdn Bhd's 30MHz allocation on the 2.3GHz band in infrastructure and spectrum sharing.

This collaboration will help avoid duplicity of infrastructure and maximise the use of bandwidth for the wireless broadband services nationwide by both companies to provide quality and uninterrupted services.

YTLC was among the eight companies awarded the LTE spectrum in late 2012. The other companies include Celcom Axiata Bhd, DiGi.Com Bhd, Maxis Bhd, Packet One Networks (Malaysia) Sdn Bhd, Puncak Semangat Sdn Bhd, REDtone International Bhd and U Mobile Sdn Bhd.

Celcom Axiata, Maxis, DiGi and U Mobile were more aggressive in their LTE rollout. Celcom said it plans to have more than 2,000 LTE sites, while DiGi expressed its plans to have more than 1,500 LTE sites by end of this year. Maxis, which has set aside RM1.1 billion of capital expenditure (capex) this year, said it will spend a significant amount of this capex to expand its LTE coverage.

On another note, Wing said YTLC will be launching the 1BestariNet project in Sarawak this year.

So far, 90% of 10,101 primary and secondary government schools in Malaysia are connected through the cloud-based virtual learning.

So, it looks like YTL Power International may get more cash in its pocket through the advent of YTLC's LTE technologies when they are implemented.

Perhaps, it is time to collect some more YTL Power shares?