IN addressing the elephant in the room, a research house has cautioned AirAsia Group Bhd that its digital segment is still in infancy and is altogether a different ball game as opposed to the company’s traditional business of flying budget airlines.
Certainly no harm exploring new business ventures but MIDF Research is wary that AirAsia’s digital segment is not self-sustaining yet while its economies of scale is unable to sustain the whole group especially in the near future.
“As of now, survival of the company is depending on the success of the group fundraising activities and revving back its core business, airlines,” justified analyst Ummar Fitri in a company update.
“Without successfully addressing the immediate needs of its airline business, AirAsia is still going to be in precarious state, foreseeably longer than CY2021-CY2022.”
Yesterday (July 7), AirAsia through its digital arm AirAsia Digital (AAD) has proposed to acquire Gojek’s operations in Thailand for deal worth US$50 mil (RM207.83 mil) which will be funded via share issuance by offering the vendors a 4.76% stake in AirAsia SuperApp Sdn Bhd.
Pending approval from Bank Negara Malaysia (BNM) and Bank of Thailand, the deal is slated for completion by the 4Q CY2021.
Maintaining its “sell” rating on AirAsia with a target price of 44 sen, MIDF Research opined that the budget carrier’s recent its share price might have overshot the valuation level that it 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,” asserted the research house.
“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 the current surge in new COVID-19 cases.”
While recovery for the aviation sector/air travel is expected to gradually take place in 2021, it remains an uphill battle for AirAsia given that it is struggling financially to remain afloat in the current pandemic-laden operating environment, according to MIDF Research.
On the contrary, TA Securities Research – by far the research house most bullish on AirAsia – envisages the Gojek deal to augur well with AirAsia’s dream of becoming a digital giant in Southeast Asia as well as to propel for an initial public offering (IPO) in the future.
“Currently, AirAsia’s digital businesses have expanded into areas like e-commerce platform (AirAsia Superapp), logistics and e-commerce (Teleport) and financial services (BigPay) in major Southeast Asia countries,” noted analyst Tan Kam Meng.
“According to the management, AirAsia would start to migrate Gojek app users in Thailand to AirAsia app when the deal is completed. As such, future capex or investment into Velox Technology (Thailand) is expected to be minimal.”
All-in-all, TA Securities Research retained its “buy” rating on AirAsia with a target price of RM1.18/share based on eight times the company’s FY2022 earnings.
At 9.25am, AirAsia was up 0.5 sen or 0.56% to 90 sen with 2.98 million shares traded, thus valuing the company at RM3.51 bil. – July 8, 2021
