Are you kidding, CGS-CIMB Research? AirAsia’s target price a mere 5 sen?

READING the latest research note on AirAsia Group Bhd by CGS-CIMB Research is tantamount to watching an episode of Ripley’s Believe It or Not?

One has to decipher the justification put forth by analyst Raymond Yap to fully comprehend how the 5 sen target price come about.

This is considering the 5 sen price tag is a far-fetched 95.5% discount over the budget carrier’s current price tag of RM1.11 (as of 10.49am).

Suffice to say that in his results review of the budget carrier, Yap sees ‘a sea of hopelessness’ confronting AirAsia with its 4Q FY2020 core net loss having ballooned to RM1.1 bil from a loss of RM43 mil the year before.

This is attributable to continued international border closures and the imposition of conditional movement control order (CMCO) in Malaysia from mid-October to Dec 6 last year that prohibited interstate travel.

“Interstate travel was prohibited again from Dec 7 and remains in force at the time of writing, hence the 1Q FY2021F core net loss may be as bad or worse than 4Q FY2020,” opined Yap.

Nevertheless, AirAsia’s 4Q FY2020 core net loss narrowed slightly from 3Q FY2020’s RM1.4 bil in part due to forex translation gains on its US$ liabilities as the greenback weakened against the ringgit, coupled with mark-to-market (MTM) gains on its interest rate derivatives as long-term interest rates recovered.

“On the other hand, the 1Q FY2021F may see forex translation losses due to the stronger US$ vs. ringgit,” cautioned Yap.

“AirAsia booked RM1.3 bil in exceptional impairment losses during 4Q FY2020, causing a net loss of RM2.4 bil in 4Q FY2020 (vs RM384 mil net loss in 4Q FY2019) and a net loss of RM5.1 bil in FY2020 (vs RM322 mil net loss in FY2019).”

In terms of sustaining its future operating costs, CGS-CIMB Research noted that the airline will need all the cash it can get its hands on given the quarterly run-rate of aircraft lease principal repayments is RM620 mil/quarter (as seen in 1Q FY2020).

“But the group only repaid RM40 mil/quarter during 2Q, 3Q and 4Q FY2020 (at just 6.5% of the quarterly run rate), resulting in deferred aircraft leases of at least RM1.5 bil,” revealed the research house.

Nevertheless, the available rescue packages include RM336 mil proceeds from the private placement of 470 million shares in February and March 2021, and up to RM1 bil in potential new loans from three local banks (of which 80% to be guaranteed by Danajamin) which could be drawn down by May.

As an icing on the cake, AirAsia is also planning a RM800 mil to RM1 bil rights issue sometime this year.

To conclude, here is the basis as to how Yap derived at his 5 sen target price:

“As of end-December 2020, AirAsia had a net liability position of RM1.2 bil (book value per share [BVPS] of -37 sen).

To arrive at our end-FY2021F BVPS forecast of 5 sen, we deducted forecast operating losses, included the private placement, assumed RM1 bil rights issue (1.67 billion shares at 60 sen each), and assumed RM2 bil value accretion from AirAsia’s digital businesses using price-to-sales (P/S) of five timers on the historical FY2020 sales (in-line with Expedia’s P/S multiple).”

At 10.49am, AirAsia was down 2 sen or 1.77% at RM1.11 with 32.16 million shares traded, thus valuing the company at RM4.23 bil. – March 30, 2021

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