Finance for All : Demystifying the Stock Market

Capital A’s New Chapter: Revisiting Liabilities and Growth Potential

Alex_Kho
Publish date: Mon, 30 Sep 2024, 10:28 AM
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In my previous articles, I analyzed Capital A’s significant liabilities in “Is Capital A’s Liability Too Big?” and discussed its growth potential in “Capital A Ready for Takeoff”. Since then, the situation has improved drastically, making Capital A even more compelling as an investment.


1. Currency Gains: RM187 Million in Forex Savings

In early 2024, Capital A’s USD-denominated debt stood at RM2.28 billion. The Malaysian Ringgit (MYR) has strengthened by 8.19% since January 2024 (from 4.4895 to 4.1220 MYR/USD). With each 1% strengthening of the MYR, Capital A saves RM22.83 million on its debt repayments​.

This 8% appreciation translates to approximately RM187.01 million in forex savings, alleviating debt burdens and improving cash flow. The company had previously faced RM436.1 million in forex losses in Q2 2024​, so this reversal significantly improves the outlook.


2. Oil Price Decline: 25–30% Cost Reduction

WTI crude oil has dropped to ~$68 per barrel in Sept 2024, down from earlier peaks of over $90-$100. This decline brings a 25–30% reduction in jet fuel costs, a key component of Capital A’s operational expenses, which typically represent 20–40% of total operating costs

For Capital A, this reduction in oil prices will significantly lower operational expenses, as the company previously recorded RM210.5 million in fuel accruals in 2023​. This would lead to improved margins and boost the company’s profitability moving forward.

3. Growing Travel Demand: Boost in Revenue

Capital A continues to benefit from the resurgence in global air travel. In Q2 2024, its revenue hit RM4.86 billion, a 50% increase year-on-year​. Passenger volumes are expected to rise further as 168 aircraft have returned to service​ with plans for additional expansions to meet demand.

4. Conclusion: A Stronger Case Now

With RM187 million in forex savings, a 25–30% reduction in fuel costs, and rising travel demand, Capital A is set for robust growth in 2024. This recovery is likely to continue, driven by favorable macroeconomic conditions and operational improvements. Given these fundamentals, it’s realistic to expect the stock to break MYR 1.00, as Capital A builds on these gains and regains investor confidence.


read more on medium: https://bit.ly/3NbZs85


Assumptions and Disclaimer
  • No Extensive Hedging: This analysis assumes Capital A has minimal hedging in place for its USD-denominated debt. As noted in my earlier article, large forex losses in previous quarters indicate full exposure to currency fluctuations​. Therefore, the MYR’s strengthening directly benefits the company’s debt repayment costs.
  • Fuel Costs: It is assumed that fuel represents 20–40% of operating costs. The current 25–30% drop in oil prices will substantially reduce expenses, supporting the company’s profitability.
  • This article is for informational purposes only and does not constitute financial advice. Always perform your own research or consult a financial advisor before making investment decisions.


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