REFLECTING on the significant progress of AirAsia X Bhd’s turnaround plan, lower cost structure as well as higher contribution from air cargo business, PublicInvest Research has upgraded the long-haul budget carrier’s rating to “outperform” (from “neutral” previously) but maintained its target price of 13 sen.
Nevertheless, the research house caveated its blue sky projection by reminding shareholders that they will likely have to go through the entire corporate exercise (rights issue) to reap the full benefits of AirAsia X’s turnaround plan.
Last Friday (Nov 19), AirAsia X held a briefing to provide updates on the progress of its turnaround plan. Overwhelming support by the scheme creditors the previous week exceeds market expectations which provides the group a much-welcome relief in now being able to look forward.
The debt restructuring will cut the group’s gearing levels to zero and enable it to start on a clean slate.
With the fund-raising exercise expected to be completed by 1Q 2022, AirAsia X would have raised adequate funds to resume its operation to all destinations in selected markets by end- 2022.
The group also plans to focus on cargo-driven routes to mitigate uncertainties caused by the current pandemic and/or other potential passenger-carrying eventualities.
“Such flights undertaken by the group in the past two quarters with little or no passengers has proven to be economically viable, with a much leaner cost structure,” PublicInvest Research pointed out.
“In the last 18 months during the worst (presumably) of the pandemic, cargo revenue has helped narrow losses of airlines. Going forward with the pandemic under better control, financials of airlines will be a lot better. The business model is substantiated.”
Very broadly, AirAsia X’s turnaround plan consists of a (i) proposed debt restructuring, (ii) proposed corporate restructuring, and (iii) proposed fundraising to attain a sustainable debt structure and pave way for fresh capital to restart the company’s operations when international borders re-open.
It is worthwhile noticing that AirAsia X’s proposed corporate restructuring entails share capital reduction involving the reduction of 99.9% of the company’s issued share capital vis-à-vis the cancellation of paid-up share capital which is lost or unrepresented by available assets.
The credit arising from this exercise will be used to offset the accumulated losses. The share consolidation exercise will consolidate 10 existing AirAsia X’s shares into one consolidated share which in effect will increase the trading price of Air Asia X’s shares because of a reduced number of AAX shares.
At 10.46am, AirAsia X was up 0.5 sen or 6.67% to 8 sen with 776,700 shares traded, thus valuing the company at RM332 mil. – Nov 22, 2021
