Investment Highlights

• We revise our call on Capital A to a HOLD from BUY with a lower fair value (FV) of RM0.83/share (from RM1.70/share previously), pegged to FY24F PE of 8x which is comparable to +1 std dev above its pre-pandemic (2018-2019) average of 5x. Our FV also reflects a neutral 3-star ESG rating.

• We cut our FY24F-FY26F earnings by 10%-41% to account for lower non-aviation revenue earnings growth rates and lower operating margins.

• The group delivered a 1HFY24 core net profit (CNP) of RM222mil, which was below ours fully-year estimate by 19% and street’s by 6%. Recall that the group registered core net losses (CNL) over the past 4 years since the Covid-19 pandemic began. Hence, there are no comparable quarters.

• YoY, Capital A’s 1HFY24 revenue rose 78%, driven by a ner broad-based recovery, particularly from the aviation segment which grew by 86% from continued recovery in load factor, higher average fares and better-than-expected ancillary income. 1HFY24 CNP turned positive, a first since the pandemic.

• QoQ, Capital A’s 2QFY24 revenue saw a sequential decline of 7% as the aviation segment saw similar declines with flattish performances by Teleport and Capital Aviation Services. 2QFY24 earnings turned negative to RM50mil as EBITDA dropped by 29%, dragged by all segments and continually high depreciation for the non-aviation businesses.

• The outlook for aviation remains positive with passenger traffic expected to recover to 89% of pre-pandemic levels.

• Despite the reduction in our earnings forecast, we continue to observe Capital A’s ongoing effort to turnaround its negative shareholders equity position, which we see as a significant catalyst for the group. Management updates that it expects the PN17 status to be lifted by 1HFY25.

• Capital A appears to be fully valued as it currently trades at a current P/E of 7.6x, close to +1 std dev to its pre-pandemic average.

Source: AmInvest Research - 30 Aug 2024