HONG Leong Investment Bank (HLIB) Research has joined the chorus of research houses which appraised AirAsia Group Bhd solely from the aviation sector perspective without due consideration for the former’s digitalisation business.
The consolation is that the research house has accorded a more realistic target price on the supposedly perceived budget carrier unlike CGS-CIMB (5 sen on March 30) and MIDF Research (21 sen on April 28).
Maintaining its “sell” call, HLIB Research has in fact only lowered AirAsia’s target price to 70 sen (from 90 sen previously) on grounds that the group is affected by surge of COVID-19 cases in Malaysia and regional countries of operation.
This is not far-fetched from AirAsia current share price of 85.5 sen as at 12.29pm (up 1 sen or 1.18% with 3.70 million shares traded which values the company at RM3.26 bil).
While acknowledging that the management has been building up momentum on its super-App segment, the research house does not expect material contribution from the super-App in the near term given it is “unable to cover the expected huge losses from airline segment”.
Like its peers, HLIB Research sees a worrying trend of the aviation industry being impacted by the recent fourth wave of COVID-19 in view of continued restriction on domestic air travel and also longer-than-expected national border closing.
After all, the Malaysian Aviation Commission (MAVCOM) has revised its 2021 air traffic forecast to a contraction 22.9-29.1% year-on-year (yoy) from growth of 94.2-100.3% yoy as it expects increasing risk factors to the hopeful recovery.
“India, the Philippines, Thailand, Japan, South Korea, Cambodia and Laos have (also) been recording surge in daily new cases for the past month,” justified analyst Daniel Wong who has also retained his “underweight” outlook on the aviation sector.
“Hence, we expect prolonged drag to domestic air travel demand for AirAsia. Moreover, AirAsia will face stiff competitions from other domestic based airlines as the players are competing for a share of the now smaller domestic segment (given the limited flight opportunity for international segment).”
Based on its latest 4Q FY2020 result, HLIB Research further opined that AirAsia is effectively an insolvent airline group with negative shareholder equity position of RM1.2 bil (including minority interest, total negative equity of RM3.6 bil).
“The group has recently raised RM336 mil through private placement exercise and expected upcoming rights issue exercise in order to recapitalise the group which may result huge dilution to the group,” argued the research house.
“We are relatively concern if AirAsia does not plan financially ahead for a potential prolonged drag on air travel demand into 2023-2024 (instead of being too bullish for strong recovery in 2022).”
More positively, however, HLIB Research noted that AirAsia is still in talks for a favourable leasing terms with aircraft lessors which may lower operating costs and also potentially some reversal of the already accounted lease expenses (amortisation and finance lease) in FY2020. – May 4, 2020