Investment Highlights

• We upgrade our call for AirAsia to TRADING BUY from SELL. While maintaining our forecasts, we raise our fair value by 55% to RM0.68 (vs. RM0.44 previously) based on 10x FY22F EPS (vs. 6.5x FY22F EPS previously) to reflect the much positive outlook for airline industry following the emergence of a highly effective Covid-19 vaccine. At 10x, we value AirAsia at a discount to its global peers, Ryanair (27x forward PE) and Southwest Airlines (14x forward PE) to reflect AirAsia’s relatively smaller size.
• Overnight, Pfizer and its partner and German partner BioNTech said that their experimental Covid-19 vaccine PFE.N is >90% effective with no serious safety concerns based on initial trial results. The companies estimate that they can roll out up to 50mil doses this year (for 25mil people) and then produce up to 1.3bil doses in 2021.
• The availability of an effective vaccine will mean that the cross-borders travel restrictions can finally be lifted, allowing the passengers to return to the sky again after almost a year of lockdowns and worldwide travel bans. This greatly enhanced the earnings certainty of AirAsia.
• Nonetheless, we do not rate AirAsia as an outright BUY as we are mindful of the urgent need for airlines, including AirAsia, to recapitalise their balance sheets on the massive losses they have suffered amidst a collapse in air travel since the pandemic. We caution on a potential steep downwards adjustment to AirAsia’s share price in the event of a highly dilutive equity-raising exercise.

Source: AmInvest Research - 10 Nov 2020