CGS-CIMB Research which was renowned for having little faith in Capital A Bhd by virtue of its poor rating and target price on the latter has decided to cease overage of the AirAsia operator.
“We are ceasing coverage of Capital A in order to reallocate resources to other sectors and stocks,” wrote analyst Raymond Yap in a ceasing coverage note.
“Our previous recommendation, target price and earnings forecasts should no longer be relied upon. Our last call was a ‘reduce’ with a target price 18 sen as was published in our report dated May 27.”
To re-cap, the final company update by CGS-CIMB Research centred on Capital A which was formerly AirAsia Group Bhd reporting its ninth consecutive quarterly core loss of RM1 bil in 1Q 2022 as travel demand remained weak albeit on a recovering trend (4Q 2021 core net loss: RM1 bil).
The research house further rationalised back then that computation of Capital A’s target price back then was based on two components, namely:
- Expectation of Capital A’s negative shareholders’ equity to deepen to RM5.8 bil at end-FY2022F. This follows assumption that the de-consolidation of Indonesia AirAsia (IAA) and Philippines AirAsia (PAA) (which will add back Capital A’s RM3.1 bil share of their net liabilities), full conversion of the redeemable convertible unsecured Islamic debt securities (RCUIDS) of RM960 mil and full exercise of the warrants (ie RM650 mil).
- Having factored in a RM2 bil valuation for Capital A’s digital businesses, pegged to half of the implied valuation based on an acquisition transaction in July 2021 (that of the acquisition of 100% of two Gojek Thailand’s unlisted entities).
Meanwhile, PublicInvest Research retained its rating of Capital A at “neutral” with an unchanged target price of 69 sen even with the company revealing that its operating statistics showed continued recoveries with passenger volume for the consolidated aircraft operating certificate (AOC) operations (Malaysia, Indonesia and the Philippines) rising by 48.2% quarter-on-quarter to 5.6 million.
“While international traffic is still at the early stages of recovery at 30% of pre-COVID levels, the encouraging trend in load factors suggest that long-haul traffic is gradually re-gaining some momentum,” opined analyst Denny Oh in a company update.
“However, we remain wary over the group’s PN17 (Practice Note 17) status and its ability to turn around its financial position within the next 12 months.”
At 9.34am, Capital A was up 0.5 sen or 0.78% to 65 sen with 907,000 shares traded, thus valuing the company at RM2.68 bil. – July 26, 2022
