• We maintain our SELL recommendation, forecasts and FV of RM0.50 based on 6.5x FY21F EPS, at a 50% discount to its global peers (Ryanair and Southwest Airlines) to reflect AirAsia’s relatively smaller size.

• AirAsia has reinstated the positions of Tan Sri Tony Fernandes as the group’s chief executive officer-cum executive director and Datuk Kamarudin Meranun as executive chairman. This follows the announcement of the findings of BDO Governance Advisory Sdn Bhd (appointed by AirAsia last month to undertake a review on corruption allegations against the two executives). The findings are as follows: 1. AirAsia has a robust aircraft procurement process. The process was complied with and AirAsia’s aircraft acquisition was justifiable and at prices favourable to AirAsia. 2. AirAsia’s sponsorship of the sports team was approved in compliance with its procedures. 3. The sponsorship of the sports team by Airbus was disclosed to and supported by the board of directors of AirAsia at the relevant time. The sponsorship showed demonstrable benefits to AirAsia Group and was not linked to any purchase decisions by AirAsia. 4. The two executives (Tan Sri Anthony Francis Fernandes and Datuk Kamarudin Meranun) had properly disclosed their interests to the board of directors of AirAsia and abstained from discussions and/or decisions relating to the said sponsorships.

• To recap, the two executives temporarily relinquished their positions in the company last month amidst the corruption probe in which Airbus had allegedly bribed two executives at AirAsia with some US$50mil in sports team sponsorship in exchange for purchasing Airbus aircraft. Airbus has agreed to a US$4bil settlement with US, UK and French prosecutors.

• We are mildly positive on the latest development as the two individuals, who have been in the driver’s seats of the company since its inception about two decades ago, can now be directly involved in the running of the company (vs. just advisors previously). This comes at a time when the global airline industry is facing the biggest survival test ever amidst a sudden collapse in air travel demand on the back of the Covid-19 pandemic. We believe the two individuals could help in making important decisions with regards to day-to-day operations, as well as in negotiation with suppliers (particularly, aircraft lessors and airport and aircraft maintenance, repair & overhaul (MRO) operators) on lower charges.

• We are cautious on AirAsia as its key strategy to aggressively grow its top line to offset the impact of the higher cost structure following the sale-and-leaseback of its fleet has been thwarted by the Covid-19 outbreak. Not helping either, is the recent cancellation of Visit Malaysia Year 2020.

Source: AmInvest Research - 23 Mar 2020