Reported core LATMI of -RM664.4m for 2QFY21 and -RM1.3bn for 1HFY21, below HLIB’s FY21 expectation (LATMI -RM1.6bn) and consensus (LATMI -RM2.1bn), affected by on-going movement control restrictions. Nevertheless, ASEAN governments are starting to adopt more relaxed measures and planning for tourism activities as vaccination program accelerates, in line with their economy recovery plans. Upgrade to HOLD (from Sell) with a higher TP: RM0.95 (ex-rights TP: RM0.68) from RM0.56, based on 8x FY23 PE.

Below expectations. AirAsia Group (AAG) continued to report dismal results with core LATMI of -RM664.4m for 2QFY21, which further dragged 1HFY21 to -RM1.3bn, vs HLIB’s FY21 LATMI forecast of -RM1.6bn and consensus -RM2.1bn. The earnings disappointment was mainly due to continuous strict movement control measures across ASEAN region, affecting air travel demand.

QoQ. Reported LATMI of -RM664.4m in 2QFY21, relatively similar to -RM641.5bn in 1QFY21, as the group continued its strict cost-control policy during the on-going implementation of movement control measures in across ASEAN countries. The group has ceased losses recognition from India (become investment stake level in 4QFY20) and Thailand (accumulated losses has surpassed AAG’s investment cost).

YoY/YTD. Reported lower LATMI of -RM664.4m in 2QFY21 (vs. –RM1.1bn in 2QFY21) and -RM1.3bn in 1HFY21 (vs. -RM1.7bn in 1HFY21), as the improvement was due to strict cost-control measures during current period, as compare to the initial substantial financial impact of Covid-19 in SPLY.

Relaxation. Despite the still high new Covid-19 cases within AAG’s geographical operation, the governments have decided to relax their restrictions, considering the on-going vaccination program and the prolonged impact to the economy under the current strict movement control measures. Malaysia government has planned relaxation under the National Recovery Plan (NRP) and is allowing domestic tourism to soon recommence (starting with Langkawi). Thailand government is also planning for sandbox tourism in various tourist destinations after finding success in Phuket. However, these pockets of relaxation for domestic travel still seem to be at a nascent stage, while international travel will only be gradually allowed towards 2HFY22.

Digital ventures. On a more positive note, the group’s digital platform (Teleport, AirAsia.com, BigPay, Santan, BigRewards, Santan) continued to gain traction as the group acquired a few domestic digital platforms i.e. Dacsee (Msia), Delivereat (Msia) and Gojek (Thai). The group will eventually list its digital ventures initiative through a SPAC (Special Purpose Acquisition Company).

Liquidity. Management expects to complete its rights issue to raise up to RM1bn and secure new bank financing of RM1bn by end FY21. At the meantime, the group continues to raise capital to finance the expansion of its digital ventures. Management clarified the current monthly cash burn at only RM71m. Back of envelop calculations indicated the equity fund raising exercise will not be able to address its current negative equity position of -RM2.3bn as at 1HFY21.

Forecast. Raised core LATMI to -RM2.3bn (from -RM1.6bn) in FY21 and -RM1.1bn in FY22 (from -RM1.0bn), but increased FY23 earnings to RM393.2m (from RM354.0m).

Upgrade to HOLD, TP: RM0.95. We upgrade to HOLD (from Sell) on AAG with higher TP: RM0.95 (ex-rights TP: RM0.68) from previous RM0.56, based on 8x PE tagged to FY23 EPS. While the worse seems to be over, we remained concern on pace of recovery, negative equity position and the dilutive rights issue exercise.

Source: Hong Leong Investment Bank Research - 9 Sept 2021