AirAsia X (AAX) has announced a partnership with GEODIS, to provide regular dedicated scheduled cargo flights for an initial period of 6 months commencing from 20th Jan 2022 with the possibility of further extension. While AAX has operated ad-hoc charter services for GEODIS in recent months, this new arrangement will provide better certainty on utilisation of its planes and better visibility of earnings. The partnership strengthens AAX’s cargo-driven focus and appears to be gaining traction. We like the turnaround story of the Group, though full value is likely only to be attained with shareholders going through the entire corporate exercise (including rights issue). We make no changes to our forecast and reiterate our Outperform call on AAX with unchanged TP of RM0.13 based on ex-all 4x EV/EBITDA of FY23E (TP RM1.30 after adjusting for Proposed Share Consolidation). 4x EV/EBITDA multiple is at the lower end of peer comparison.

• Partnership with GEODIS. AAX has established a new air logistic partnership with GEODIS. Under the agreement, AAX will provide regular dedicated scheduled cargo flights between Kuala Lumpur and Hong Kong, Chennai, Shanghai and Sydney. The agreement is set to run for an initial period of six months commencing from 20th Jan 2022 with further extensions to be contemplated. AAX will provide additional cargo capacity while boosting its revenue during the downtime in commercial flying.

• About GEODIS. GEODIS is a global transport and logistic provider with focus on 5 lines of business (Supply Chain Optimization, Freight Forwarding, Contract Logistics, Distribution & Express, and Road Transport). GEODIS’ global network spans nearly 170 countries, employs over 41,000 people globally and generated EUR8.4bn in revenue in 2020. GEODIS is ranked seventh in the world and sixth in Europe in its field.

• Proposed Corporate Restructuring. On a separate note, AAX announced that the Proposed Share Capital Reduction was completed on 26 Jan 2022. The Proposed Share Consolidation which involves the consolidation of 10 existing AAX shares into 1 Consolidated Shares will be completed on 11 Feb 2022, being the entitlement date for the Share Consolidation (ex-date on 10 Feb 2022). The Consolidated Shares will be listed and quoted on 14 Feb 2022. 
  To recap, the Proposed Corporate Restructuring (which consists of Proposed Share Capital Reduction and Proposed Share Consolidation) is 2nd step of the Turnaround Plan, which is to pave the way for the Group to raise funds to kick-start its business operations. Following the completion of Proposed Corporate Restructuring, AAX will commence fund-raising exercises to support its business plan. 
  The fund-raising exercises consist of a Proposed Rights Issue and Proposed Share Subscription. Under the Proposed Rights Issue, the Group intends to raise a minimum of RM100m and a maximum of up to RM300m via the issuance of new AAX shares. The Rights Issue Price shall be determined by the Board. For illustrative purposes, RM0.40 per Rights Share has been indicated, representing a discount of 8.3% to the theoretical ex-all price (TEAP) of AAX shares of RM0.43 based on AAX’s last traded share price of RM0.55 (after adjusting for Proposed Share Consolidation). The illustrative rights entitlement is on the basis of 9 rights shares for every 5 consolidated shares.
  Conditional upon the completion of the Proposed Rights Issue, a Proposed Share Subscription will be implemented, with the aim of raising a minimum RM50m and maximum of up to RM200m, via issuance and allotment of new AAX shares by way of subscription to potential investors. The issue price of the subscription shares will be the same as the Rights Issue Price. A Special Purpose Vehicle (SPV) incorporated by AAX’s Deputy Chairman Dato’ Lim Kian Onn will commit to a minimum subscription of RM50m. In addition, the SPV will also be given an option to subscribe to an additional 15% of the enlarged total number of AAX shares after Proposed Rights Issue and Proposed Share Subscription.

Source: PublicInvest Research - 27 Jan 2022