Reported core LATMI of -RM677.4m for 3QFY21 and -RM2.0bn for 9MFY21, in line with HLIB’s FY21 expectation (LATMI -RM2.3bn) and consensus (LATMI -RM2.6bn), affected by on-going movement control restrictions. Nevertheless, AAG is expected to experience strong air travel recovery as ASEAN countries are relaxing cross border restrictions as the countries’ vaccination programs gain traction. Maintain HOLD with a higher TP: RM1.18 (ex-rights TP: RM0.84) from RM0.95, based on higher 10x (from 8x) FY23 PE.

Within expectations. AirAsia Group (AAG) continued to report dismal results with core LATMI of -RM677.4m for 3QFY21, which further dragged 9MFY21 to -RM2.0bn, vs HLIB’s FY21 LATMI forecast of -RM2.3bn and consensus -RM2.6bn. The weak earnings was mainly due to continuous strict movement control measures across ASEAN region, affecting air travel demand during the quarter.

QoQ. Reported LATMI of -RM677.4m in 3QFY21, relatively similar to -RM664.4m in 2QFY21 due to continuous strict movement control measures during the quarter within the group’s operational countries.

YoY/YTD. Reported lower LATMI of -RM677.4m in 3QFY21 (vs. -RM876.1m in 3QFY20) and -RM2.0bn in 9MFY21 (vs. -RM2.6bn in 9MFY20), 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 to drive air travel recovery. ASEAN countries are gradually relaxing lockdowns and cross-border travels, as vaccination programs gain paces. Malaysia is transitioning into Phase 4 of the National Recovery Plan (NRP) and has allowed cross state border travelling with no quarantine requirements as well as establishing vaccine travel lane (VTL) with Singapore and Indonesia. Thailand has opened its borders to vaccinated visitors from over 60 countries considered “low risk” with no quarantine requirements. Similarly, the Philippines is also looking to open its borders to fully vaccinated tourists coming from “green list countries” soon. Indonesia has also allowed tourism into Bali island but subject to 3 days quarantine.

Digital ventures. The group’s digital platform (Teleport, AirAsia.com, BigPay, Santan, BigRewards, Santan) continues to gain traction with increasing market share as the group expands organically and through acquisitions of existing domestic digital platforms i.e. Dacsee (Msia), Delivereat (Msia) and Gojek (Thai). Initial valuation of its digital ventures include AirAsia Superapp at USD1bn (RM4.1bn) and Teleport at USD300m (RM1.2bn). Management has started exploring potential listing of the digital ventures through a SPAC (Special Purpose Acquisition Company) in NYSE/Nasdaq.

Liquidity. The group has already secured USD150m foreign loan and received USD57m disposal of Fly Leasing share. Management expects to complete its rights issue to raise up to RM1bn and secure new Danajamin backed bank financing of RM500m by end FY21. At the meantime, the group continues to raise capital to finance the expansion of its aviation group and digital ventures. Management clarified the current monthly cash burn at only RM68m.

Forecast. Unchanged.

Maintain HOLD, TP: RM1.18. Maintain HOLD on AAG with higher TP: RM1.18 (ex rights TP: RM0.84) from previous RM0.95, based on higher 10x PE (from 8x) tagged to FY23 EPS on improving air-travel outlook. Nevertheless, we remain concern on the current negative equity position which may result in PN17 status (management is still engaging Bursa for potential extension).

Source: Hong Leong Investment Bank Research - 23 Nov 2021