TA Securities has downgraded AirAsia Group Bhd to sell from a buy call with a reduced target price of RM1.03 from RM2.01 following allegations that executives of AirAsia Group and AirAsia X Bhd (AAX) had received bribes from aircraft maker Airbus.
Analyst Tan Kam Meng advocates the approach of “sell first, ask questions later” to avoid any uncertainty in the stock from the corruption investigations.
“We choose the ‘sell first, ask questions later’ approach to avoid the uncertainty in association with the corruption investigation by the Malaysian Anti-corruption Commission (MACC), where the impact on AirAsia could be significant in terms of corporate governance issues,” says Tan.
MACC had launched an investigation following revelations that executives of AirAsia and AAX were among those who received bribes from Airbus, when the two companies were mentioned in court documents. AirAsia has since made a statement to clarify that the company was not involved in any way with the Serious Fraud Office’s investigation of Airbus, nor was it given any opportunity to provide information or clarification.
The downgrade is also due to the impact likely to be seen by the airline due to the coronavirus outbreak.
Tan estimates the outbreak will reduce AirAsia’s load factor by 3 percentage points, considering there have been confirmed cases in AirAsia’s major operating hubs, the declaration of public health emergency status by various countries, and the fact that airlines are providing refunds to passengers travelling to China.
“We believe the fear of the coronavirus outbreak would possibly deter travel sentiment despite Malaysia celebrating Visit Malaysia Year 2020,” says Tan.
At 3.30pm, AirAsia’s shares were last done at RM1.29, down 14 sen, with 46 million shares changing hands. AAX’s shares were last done at 12.5 sen, down half a sen, with 23.9 million shares changing hands. – Feb 3, 2020
