Maybank Investment Bank Bhd (Maybank IB) has maintained a HOLD call on Capital A Bhd, with a target price of RM1, based on its sum-of-parts (SOP) valuation. This follows a weaker-than-expected performance in the third quarter of 2024 (3Q24), with a marginal core net loss despite a substantial forex gain that boosted the headline profit.

The research house has reduced its earnings estimate for FY24 by 71% to RM93.5 million from RM318.2 million but maintains its projections for FY25 and FY26, as it expects the airline to return its full fleet to service by 1Q25. At present, approximately 85% of Capital A's fleet is active, an improvement from 77% at the end of 3Q24. Maybank IB has reiterated that the return of the full fleet is not a matter of "if" but rather "when".

Capital A's 3Q24 headline profit was reported at RM1.64 billion, largely driven by an RM2.27 billion foreign exchange gain from its US dollar leases and borrowings. However, excluding these one-off items, the group recorded a core net loss of RM59.3 million, a 41% decline year-on-year (YoY) and a 19% decrease quarter-on-quarter (QoQ).

This resulted in a 9M24 core net loss of RM65.7 million, a significant miss compared to Maybank IB's expectation of a core net profit of around RM100 million for both 3Q24 and 9M24. The shortfall was primarily due to a lower number of passengers carried, with only 46.9 million passengers carried in the first nine months, accounting for just 71% of the full-year target. Additionally, only 77% of Capital A's fleet was operational during the quarter, falling short of Maybank IB's expectations.

Looking ahead, Maybank IB expects a sequential improvement in 4Q24 results, driven by an expected 88% load factor, a slight increase in average fare to RM235 and a stable ancillary revenue per passenger of over RM50. Additionally, with spot jet fuel prices easing to US$87 per barrel in 4Q24 from US$92 per barrel in 3Q24, the research house anticipates further positive momentum.

At the same time, Capital A hopes to complete the sale of five of its airlines to AirAsia X by 1Q25 and aims to lift its Practice Note 17 classification in the first half of 2025.