Cluelessness of digitalisation future leads to ‘ridiculous’ AirAsia target price

DON’T blame the analyst fraternity for appraising AirAsia Group Bhd solely from an aviation perspective.

The latest MIDF Research’s company update which rated the budget carrier a “sell” with a target price of 21 sen is not far-fetched from that of CGS-CIMB Research’s note which prescribed a target price of 5 sen on AirAsia.

Recall that in our March 30 article entitled Are You Kidding, CGS-CIMB Research? AirAsia’s Target Price a Mere 5 Sen?, AirAsia was ridiculed with a 5 sen price tag which was a lofty 95.5% discount over the airline’s share price of RM1.11.

Well, AirAsia has allowed history to repeat itself today in MIDF Research’s update which centres on an announcement by Asia Aviation Public Ltd (the listed holding company of Thai Air Asia) to restructure the ailing airline.

To note, AirAsia Group holds 45% of Thai AirAsia via AirAsia Investment, a wholly owned subsidiary of the group.

As expected, the said research note priced in everything on the restructuring plan from initial public offering (IPO) proposal to conversion of debt to equity, loan from an investor in the form of convertible bond and shares offering to Asia Aviation’s current executive chairman.

In fact, most if not the entire report centred on the aviation industry when AirAsia has already ventured into various digitalisation-powered businesses outside its supposedly core area – the latest being online ordering and delivery of the Harumanis mango from Perlis to one’s doorstep.

In our article entitled AirAsia Now Has Its Hands on Everything except Flying (April 26), we depicted how it is getting very interesting by the day to second guess what AirAsia has up its sleeve next?

After all, within a span of less than one week, AirAsia has also unveiled beauty and financial products prior to the Harumanis mangoes joining its slew of new business ventures.

To conclude the said MIDF Research note, analyst Ummar Fitri observed that AirAsia’s recent share price might have overshot the valuation level that the research house deemed fair for the company based on current situation.

“We are hopeful on aviation recovery but maintain level headedness in assessing the viability of the recovery,” he opined.

“While the course charted seemed conservative, we consider it as a precautionary and reasonable at a time when sentiment that lifted the share prices of aviation players may be excessive given uncertainty surrounding vaccine introduction and administration.”

And this is how Ummar justified his reiteration of “sell” call on AirAsia – very strictly based on aviation sector assessment.

“We opine that although recovery for the aviation sector and air travel is expected to gradually to take place in 2021, it remains an uphill battle given that travel restrictions have not been fully lifted,” he noted.

“Key risks to our call include (i) faster-than- expected travel demand recovery; (ii) worsening pandemic; (iii) stricter movement controls order imposed on air travels; and (iv) further round of equity fund raising.”

At 11.11am, AirAsia was up 1.5 sen or 1.69% to 90 sen with 15.69 million shares traded, thus valuing the company at RM3.43 bil. – April 28, 2021

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