One round of fund-raising may be insufficient for AirAsia

AIRASIA Group Bhd may need more than one ‘lifeline’ fund-raising exercise to keep its business afloat after all.

Based on CGS-CIMB Research current assumptions for traffic recovery, the RM2.4 bil in capital raising that the budget carrier is currently targeting should be just barely enough “but is cutting it very thin”.

This is exacerbated by the high level of COVID-19 infections in Malaysia, Indonesia and the Philippines that could delay its recovery.

“Also, Indonesia AirAsia and the Philippines AirAsia are left to their own devices, but if they fail to raise new debt, AirAsia will likely have to pump in cash,” cautioned analyst Raymond Yap in a results review.

“Without government support, AirAsia is living on the edge and we believe it may need to raise more than one round of funding.”

AirAsia has expected its RM2 bil-RM2.5 bil capital raising exercise to be completed within the December 2020 to February 2021 timeframe with RM1 bil in Malaysian bank loans (of which 80% to be guaranteed by Danajamin) and up to RM1.4 bil in new equity.

Thus far, it has already raised RM300 mil from the Sabah Development Bank although this amount is earmarked for projects within Sabah.

“Our forecasts assume that AirAsia will raise RM1.4 bil of new debt in FY2020-2021F and RM1 bil of new equity in FY2021F (three billion shares at 35 sen, a 50% discount from the current share price),” projected Yap.

“AirAsia specifically mentioned that a rights issue was on the table. Without the equity issue, we expect the budget airline to fall into a net liability position by end-FY2021F.”

According to CGS-CIMB Research, AirAsia’s 3Q FY2020 core net loss of RM1.4 bil was more than double the RM600 mil loss in 3Q FY2019 and only marginally lower than the RM1.5 bil loss in 2Q FY2020 despite the partial domestic travel recovery seen at its Malaysian, Indonesian, the Philippines and Thailand operations.

“Passenger traffic and airline profitability have been severely hampered by the international border closures for which there is no sign of easing yet,” opined the research house.

Although AirAsia has been raising cash by selling tickets and its spare engines in 3Q FY2020, its cash balance fell to RM618 mil (Sept 30) from RM2.6 bil (Dec 31 last year) which can last less than three months at the actual burn rate of RM222 mil/month during 9M FY2020.

“The re-imposition of CMCO from October and November in Malaysia has curtailed domestic travel again, coinciding with the progressive resumption of lease instalments, making 4Q FY2020F tougher than expected,” warned Yap.

All-in, CGS-CIMB Research maintained its “reduce” rating on AirAsia with a lower target price of 11 sen (previously 13 sen) as huge losses may persist due to the slow recovery from COVID-19 in addition to concern that the upcoming first round of fund raising may not be enough.

At 10.15am, AirAsia was up six sen or 8.45% at 77 sen with 23.83 million shares traded, thus valuing the company at RM2.57 bil. – Nov 25, 2020

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