ANALYSTS are mixed on AirAsia Bhd’s recent financial performance in the first six months ended June 30, 2008 (1H08), on a bleak outlook for the aviation sector as consumer spending weakens.

HLG Research said AirAsia’s core net profit of RM54 million for 1H08 fell 40% below its forecast. “The poor results reaffirm our sell rating on the stock as it would be difficult for AirAsia to pass through higher jet fuel cost to end-customers.” The low cost carrier’s price target was maintained at 86 sen.

It also said AirAsia’s key challenge in 2H would be filling up its new capacity, whilst maintaining decent yields. “This would be a key challenge (for AirAsia), given the price war with Malaysia Airlines and slower economic growth.”

HLG Research added that jet fuel prices could be higher in 3Q given that it hit a record-high of US$180 (RM608.40) per barrel in mid-July. Also, the company has does not have a hedged jet fuel position from June onwards, it said.

“We are cutting our FY08 core earnings per share (EPS) by 27% to RM130 million on higher average jet fuel price assumption. We do not expect any upside surprises in the next quarter given that it is a seasonally low quarter and jet fuel price remained a key concern.

“We think expectations of RM478 million for FY08 are too aggressive. Assuming the current stagflationary environment persists into 2H, we see AirAsia facing liquidity problems in servicing its huge debt load without paring back on aggressive capacity growth,” it said.

ECM Libra, which maintained a buy call on the stock, opined that AirAsia was trading at a depressed value compared to its historical valuations. “While short-term risks looms, we believe the long-term fundamentals of AirAsia remain intact, underpinned by its aggressive capacity additions and well-established network in this region.” It maintained a target price of RM1.90 on the stock.

Its operations in Thailand reflected a weaker consumer sentiment due to political uncertainties there. “The Thai associated posted a loss of RM22 million. However, the management believes the long-term prospects remains bright, benefiting from capacity cutbacks from the domestic airlines and introduction of new Airbuses to its fleet.”

However, its Indonesian operations had turned in a RM12 million losses despite recording higher passenger traffic growth of 12% year-on-year.

“The combination of high fuel prices and old B737 aircrafts had severely impacted the Indonesian operations. The group will introduce A320s into the Indonesian fleet in September to reduce operational costs and help to turnaround its operations,” it said.

AirAsia shares closed two sen lower at RM1.08 with 17.46 million shares changing hands on Bursa Malaysia last Friday.