FOLLOWING AirAsia Group’s announcement that it’s 33%-owned associate AirAsia Japan (AAJ) is ceasing operations, AmInvestment Bank is maintaining its sell recommendation on the company with a price of 65 sen.
“We are maintaining our forecasts, fair value of 44 sen and sell recommendation for AirAsia based on 6.5 times of earnings per share forecast for the financial year ending Dec 31, 2022, at a 50% discount to its global peers (Ryanair and Southwest Airlines) to reflect AirAsia’s relatively smaller size,” said the investment bank.
“We are mildly positive on the decision as we believe this can reduce the cash burn of AAJ, as the airline operator is striving to survive amidst the pandemic. However, we believe the impact on AirAsia’s earnings is negligible,” it added.
Recalling both the Group’s and AAJ’s performance in the first half of financial year ending Dec 31, 2020 (1HFY20), AmInvestment Bank said AirAsia posted a core net loss of RM1.6 bil on the back of a revenue passenger kilometres (RPK) contraction of 64% as air travel demand slumped during the worldwide lockdown to contain the pandemic, while AAJ recorded a net loss of ¥2,110.9 mil (about RM83 mil).
“Based on our estimation, AAJ contributes only less than 2% of AirAsia’s core net losses,” it stated.
According to the investment banking solutions and services provider, as at end of 2019, AAJ’s RPK was less than 1% of the group’s total RPK, with total net liabilities of RM158 mil, which include 3 aircraft leased from Asia Aviation Capital.
The airline is currently awaiting further clarification from lawyers regarding matters on winding up its assets.
“We expect the recovery in the air travel industry to be bumpy given the uncertainties surrounding the reopening of borders and urgent need for airlines to recapitalise their balance sheets on the massive losses they have suffered amidst a collapse in air travel since the pandemic.”
Zooming in on Asia, AmInvestment Bank believes the pandemic has disrupted plans to aggressively grow its top line to cushion the impact of the higher cost structure following the recent sale-and-leaseback of its fleet.
“We are mindful of a potential steep downwards adjustment to AirAsia’s share price in the event of a highly dilutive equity-raising exercise,” the bank noted.
As at 10.06am today, AirAsia Group share price was at 64 sen with 2.16 billion market capitalisation. – Oct 6, 2020
