AirAsia’s business remains intact at this juncture and with the selldown activities yesterday. It could be seen as a good opportunity to accumulate the shares over the mid-term as the disposal of the business unit AAC may be seen as unlocking shareholders value, eventually a special dividend to reward shareholders. Traders should accumulate near the RM3.30-3.40, targeting RM4.00-4.40. Cut loss will be set around RM3.20.

Largest Low-cost Carrier in Asia in Terms of Fleet Size. AirAsia is involved in the provision of air transportation services. The Group encompassing the Malaysian operation as well as its regional affiliates, namely Thai AirAsia, Indonesia AirAsia, Philippines AirAsia, AirAsia Japan and AirAsia India, is now flying a total of 222 routes connecting more than 100 destinations globally.

Disposal of Aircraft Leasing Operations AAC. AirAsia has proposed to dispose its aircraft leasing operations (under AAC) to 3 entities managed by BBAM (namely Herondell, Incline B and FLY Leasing) for a total consideration of US$1,185m (RM4.6bn). AirAsia is expected to recognise gain of disposal of RM967.1m. Post exercise, AirAsia may become a net cash airline company, given the net cash proceed of RM4.1bn and transfer of debts RM6.7bn to BBAM related companies.

Utilisation of Cash Proceeds. The cash proceed will be used to: 1) repay bank borrowings of RM788.1m; 2) estimated expenses of RM112m; and 3) utilization of the remaining sum of RM3.3bn will be determined on a later date (a portion of the sum will be distributed as special dividends).

Knee-jerk Selling Activities May be Well Cushioned. Although there is a steep selling pressure post-election due to Tony’s action throughout the election period, we view the knee-jerk selldown is overdone and it is likely to be minimal as we view the business to remain status quo, with regards of whichever party he is supporting. We opine that the uptrend remains intact with the steady fundamentals, coupled with the disposal of AAC, which may reward shareholders by a special dividend in the future.

Retested and Rebounded Above Uptrend Channel Support Around RM3.23. Soon after the gapped-down move after the opening bell, price reversed higher and pared down part of the losses to close at RM3.52 (within the uptrend channel) accompanied by high volumes. We believe that the buying support is genuine as bargain hunting activities emerged yesterday. The MACD Indicator is still negative but the Stochastics is oversold. Should there be any sideways consolidation near the support of RM3.23- 3.40, traders may take an opportunity to accumulate the, targeting RM3.70-4.00 over the mid-term, follow by the RM4.40 on a longer term basis. Stop loss will be pegged around RM3.20.

Source: Hong Leong Investment Bank Research - 15 May 2018