AIRASIA Group Bhd is obviously not out of the woods yet even after having secured the RM300 mil loan from Sabah Development Bank Bhd (SDB).
Moving forward, uncertainties remain as to how the budget carrier will be able to cope with the “new norm” brought about by the COVID-19 pandemic which will alter consumer demand for air travel.
In this light, MIDF Research foresees the possibility of a shrinking market size due to regional economic contraction.
“Operationally, there is a small evidence of a potential recovery,” noted the research house in a company update.
“However, we believe that the odds continue to be stacked against AirAsia and we are yet to be convinced on the recovery narrative.”
Last Friday, AirAsia confirmed that the loan from SDB has been approved and disbursed to its group of companies.
MIDF Research has no doubt that AirAsia is able to utilise the fresh fund to benefit its business and grow the OURFARM digital food supply chain and cold chain facilities in Sabah which is part of the loan deal.
“However, to address the elephant in the room, AirAsia is first and foremost an airline company before anything else,” cautioned the research house.
“The core business is still in dire state as passenger traffics remain minimal amid worsening pandemic.”
In this regard, MIDF Research opined that new funds designated specifically for AirAsia’s aviation business are needed to help the company to stay afloat.
At this juncture, the research house reckoned it will be premature to estimate any earnings contribution coming from the OURFARM business segment which is still at a very early stage of its business cycle.
“To reiterate our forecast, we are expecting a decline across the board, below FY2019 level,” projected MIDF Research.
“Hence, we maintain our FY2020/FY2021 earnings estimate, while maintaining positive earnings estimate for FY2022E.”
All-in, the research house maintained its “trading sell” call on AirAsia as it remains wary of the bleak outlook that the airline is currently facing.
“A rerating catalyst for AirAsia would a faster-than-expected recovery from the COVID-19 pandemic,” added MIDF Research.
At 12.20pm, AirAsia was unchanged at 56.5 sen with 2.99 million shares traded, giving the low-cost airline a market capitalisation of RM1.89 mil. – Oct 26, 2020
