A matter of AirAsia X flying into turbulent skies

WHILE the recent news of vaccine efficacy by Pfizer and Moderna are tempting, it is likely to take many more months before air travels are able to resume to the pre-COVID-19 level that is sufficient to spare the aviation industry from further losses.

Even a greater challenge for AirAsia X Bhd (AAX) is the completion of its debt restructuring and fund raising exercises as its very existence now hinges on the outcome of these two corporate exercises.

Only upon completion of both exercises that MIDF Research expects the company to be in a more comfortable position with lesser baggage on its balance sheet.

“Without it, AAX future as an airline might continue to be uncertain,” projected the research house.

The budget carrier posted a widening year-on-year (yoy) net loss of -RM308.52 mil (-1% quarter-on-quarter or qoq and -34% yoy) in its 3Q FY2020 on the back of lower revenue of RM59.9 mil (-34% qoq and -94% yoy).

Cumulatively, its earnings for 9M FY2020 stood at -RM1.16 bil (9M FY2019: -RM393.67 mil) while its revenue nosedived to RM1.07 bil (9M FY2019: RM3.2 bil).

AAX is planning to raise RM500 mil to jump start the airline post its debt restructuring exercise. The company disclosed that it is imperative that the debt restructuring has to be successfully completed before any formalisation for a fund raising exercise can be entered into.

In this light, MIDF Research expects the airline industry to continue to be adversely impacted by the ongoing development brought upon the COVID-19 pandemic to the extent that passenger volume is bound for a temporary decline with assumption of a prolonged recovery of the aviation industry being a non-exaggeration.

“The operational environment is then further exacerbated by the financial conundrum that AAX is currently facing,” MIDF Research pointed out.

As such, the research house has downgraded its stance on AirAsia X to “sell” (from “neutral” previously) with an unchanged target price of five sen/share.

“We believe that the price appreciation is prematurely buoyed by market euphoria surrounding the vaccines news,” added MIDF Research.

Meanwhile, AllianceDBS Research expects the upcoming quarters to remain challenging for AirAsia X as international borders remain closed.

“Upcoming earnings are most likely to mimic 3Q FY2020 results if its fleet remains grounded,” wrote analyst Siti Ruzanna Mohd Faruk in a results review.

“As such, the resumption of flights is essential for AirAsia X’s recovery. The re-opening of international borders could act as re-rating catalysts.”

All-in, the research house maintained its “fully valued” rating on the budget carrier with a target price of three sen.

At 9.55am, AirAsia X was down 0.5 sen or 7.69% at six sen with 5.33 million shares traded, thus valuing the company at RM249 mil. – Nov 20, 2020

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