AT a glance, AirAsia Group Bhd’s proposed rights issue of up to RM1.02 bil of seven-year redeemable convertible unsecured Islamic debt securities (RCUIDS) announced yesterday (July 12) is inevitable to address the group’s near-term cash flow requirement in view of travel restrictions due to the COVID-19 resurgence.
Obviously this can be an interim measure to address the budget carrier’s current financial concerns as the management continues to explore other available options or corporate proposals to improve the group’s capital structure thus strengthening its balance sheet.
Nevertheless, Kenanga Research expects AirAsia to face a tough operating environment over the next three to four quarters, still derailed by widespread travel disruptions due to the COVID-19 pandemic.
“On the longer term, AirAsia’s fortune rests on how successfully it can turn around and transform itself into a digital travel and lifestyle company,” reckoned analyst Raymond Choo Ping Khoon in a company update.
“Faced with negative operating cash flow and negative equity – BVPS (book value per share) projected at 71 sen – it is urgently resolving its liquidity and capital adequacy issues via cash calls such as this which we believe is not the last.”
Expecting further funding exercises via placements and borrowings/debt rescheduling, Kenanga Research has maintained its “underperform” call on AirAsia with an unchanged target price of 70 sen based on nine times FY2022E earnings per share (EPS).
Recall that AirAsia had in 1Q CY2021 completed two tranches of private placement to raise RM336 mil. This is part of its plans to raise between RM2 bil to RM2.5 bil in a combination of debt and equity funding to ensure sufficient liquidity for the group.
The group has thus far secured commitments from banks for government guarantee loan under the Danajamin Prihatin Guarantee Scheme and it is in its final stages of terms discussion and completion.
In addition, AirAsia has ongoing deliberations with a number of parties for joint-ventures and collaborations that may result in additional third party investments in specific segments of the group’s business.
Like Kenanga Research, Hong Leong Investment Bank (HLIB) Research also retained its “sell” recommendation on AirAsia with an unchanged target price 56 sen based on eight times price-to-earnings ratio (PE) tagged to FY2023 EPS.
“We remain concern on the current negative equity position and the upcoming dilutive rights issue exercise,” opined analyst Daniel Wong. “The overall aviation sector is still heavily affected by the on-going uncertainty on COVID-19 cases giving rise to ongoing strict lockdown measures in place.”
At 10.09am, AirAsia was down 2.5 sen or 2.82% to 86 sen with 7.03 million shares traded, thus valuing the company at RM3.35 bil. – July 13, 2021
