UOB Kay Hian: AirAsia likely to endure turbulent skies in 1H 2022

WHILE Bursa Malaysia’s rejection of AirAsia Group Bhd’s appeal to extend its Practice Note 17 (PN17) classification will likely trigger a knee-jerk reaction on share price of the budget carrier, there are mounting challenges to circumvent before a sustainable recovery can be achieved.

For one, the renewed Omicron COVID-19 variant fears have planted seeds of doubt and stalled border reopening plans which are essential to the aviation sector’s recovery, according to UOB Kay Hian Research.

“Therefore, we deem that it will still be challenging for AirAsia Group in 1H 2022 until meaningful borders relaxation and recovery of international traffic materialise,” opined analyst Jack Goh in a company update.

The bright side, however, is that AirAsia Group has previously achieved its fundraising threshold with ample financial liquidity sufficient to stay afloat through 2022-2023.

The airline managed to secure fresh funds of above RM2.5 bil in 2021 through (i) Danajamin loans in October 2021 (RM500 mil); (ii) a private placement in March 2021 (RM336.5 mil); (iii) redeemable convertible unsecured debt securities (RCUIDS) (RM974.5 mil); and (iv) monetisation of BigPay to South Korean conglomerate SK Group (US$100 mil/RM418 mil).

Moving forward to 2022, AirAsia Group is planning another debt issuance of RM500 mil Danajamin loans and restructuring of its aircraft lease payment.

“Hence, we believe that the group now has enough cash flow to last through at least 2022-2023, assuming monthly operating cash burn stays constant at RM68 mil-RM75 mil,” noted UOB Kay Hian Research.

All-in-all, the research house maintained its “hold” rating on AirAsia Group with a lower target price of 76 sen (from 92 sen previously).

“Our valuations are based on 2023’s sum-of-the-parts valuation (SOTP) where we factored in the theoretical value of AirAsia SuperApp at RM4.2 bil (US$1 bil) and Big Pay at RM938 mil,” justified UOB Kay Hian Research.

“We did not incorporate Teleport’s US$300 mil value in our SOTP to avoid double counting as almost all the earnings currently would be cargo operations that are already captured in the earnings.”

At the close of today’s mid-day trading, AirAsia Group was down 11 sen or 14.77% with 290.8 million shares traded (the day’s most active stock), thus valuing the company at RM2.58 bil. – Jan 14, 2022

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