AirAsia Group’s (AAGB) 3QFY21 headline net loss widened to RM887.0m, compared to a loss of RM851.8m in 3QFY20. Stripping out one-off items, 9MFY21 core net loss is estimated at RM1,943.0m, coming in below our and consensus full year estimates. The discrepancy is primarily due to revenue shortfall in aviation revenue as Covid-19 travel restrictions remained for most part of the quarter. Nevertheless, flight routes across operating markets have resumed gradually following the easing of travel restrictions. Given the success of the Langkawi travel bubble and surge in bookings, management aims to fly 60% of pre-COVID domestic flights by Dec 2021 from 11% in 3QFY21. With international borders also gradually re-opening, kick started by vaccinated travel lanes (VTL), more meaningful recovery is expected in 2022. The Singapore-Malaysia VTL will start on Nov 29. We keep our forecast and target price unchanged for now and maintain our Neutral call as optimism of further easing of travel restriction has been priced in for now.

• Group revenue for 3QFY21 fell to RM296.0m (-36.9% YoY, - 21.2% QoQ) dragged by aviation revenue (-70.0% YoY, -37.0% QoQ) due to lockdowns and restrictions in key operating markets. The Group operated at 11% of pre-COVID domestic capacity amid limited international operations during the quarter. This was partly offset by higher Digital business revenue however which grew 142% YoY and contributed 60% of Group revenue. On YoY basis, Teleport revenue tripled while revenue from AirAsia super app and BigPay grew 7% and 26% respectively.

• Negative EBITDA widened to RM281.3m for 3QFY21, from RM207.2m in the previous quarter. Although fixed costs and airline operating expense has been reduced 23% and 65% YoY respectively, it is still insufficient to cover the shortfall in aviation revenue. AirAsia SuperApp reported a negative EBITDA of RM79.2m for the quarter due to minimum guarantee fees (for Navitaire) and investment cost for food delivery platform, unified search and Gojek Thailand.

• Outlook. While the pace of air passenger traffic recovery remains uncertain, significant progress in fund raising and lease restructuring by the management is commendable. Latest development in its funding plan includes a foreign loan of USDS150m approved, with USD100m drawn down in November. RM1bn from the Rights Issue and RM1bn from the Danajamin Scheme is expected to be completed in Dec 21. The solid funding progress would allow the Group to ramp up its operations when borders fully re-open.

Source: PublicInvest Research - 23 Nov 2021