Air Arabia reported headline earnings of AED56mn, down 14% Y-o-Y but the numbers were deflated by non-recurring items. Fuel hedging losses yet again masked an otherwise solid operational performance with the airline booking AED82mn in losses in the quarter alone in addition to FX losses of AED12mn. In contrast, 4Q14 had FX and hedging gains of AED30mn. Recurring earnings were thus up over six-fold and were 128% above our estimate. Full-year 2015 recurring earnings were up 13% Y-o-Y.   Revenue growth was broadly in line (-1%) at 3% Y-o-Y as continued yield pressures offset strong passenger traffic growth (+17% Y-o-Y in 4Q15). Gross margin expanded c8.7pp Y-o-Y with gross profit advancing 91% Y-o-Y (+30% versus estimate) as CoGS fell on lower fuel costs. EBITDA margin advanced a slightly tamer c6.8pp Y-o-Y as SG&A costs grew c46% Y-o-Y. EBITDA was up 52% Y-o-Y, coming in 12% above our estimate.   We reiterate our Buy rating on Air Arabia, which remains a key beneficiary of the current low oil price environment. However, headline earnings will likely remain deflated by hedging losses. (Company, Hatem Alaa)   Air Arabia (DU): AED1.26 as of 7 February 2016, Rating: Buy, FV: AED1.65 per share, MCap: USD1,602 million, AIRARABI UH / AIRA.DU