Reported core LATMI of -RM876.1m for 4QFY21 and -RM2.9bn for FY21, below HLIB’s FY21 expectation (LATMI -RM2.3bn) and consensus (LATMI -RM2.6bn). The disappointment was mainly due to strict lockdown restrictions and aircraft resumption costs. Nevertheless, CapA is expected to experience strong air travel recovery in both domestic and regional ASEAN travel in FY22. Upgrade to BUY with unchanged TP: RM0.84, based on 10x FY23 PE.

Below expectation. Capital A (CapA) continued to report dismal results with core LATMI of -RM876.1m for 4QFY21, which further dragged FY21 to -RM2.9bn, vs HLIB’s FY21 LATMI forecast of -RM2.3bn and consensus -RM2.6bn. The weaker than expected earnings was mainly due to continuous lockdown measures and boarder closure across ASEAN region, affecting air travel demand during the year and higher than expected aircraft resumption costs.

QoQ/YoY. Reported core LATMI of -RM876.1m in 4QFY21 (vs. -RM677.4m QoQ; -RM543.6m YoY), mainly due to increase in repair and maintenance costs following the group’s resumption of flights activities (in order to get aircraft to fly again).

YTD. Reported lower core LATMI of -RM2.9m in FY21 (vs. -RM3.1bn in FY20) as the improvement was due to strict cost-control measures during current period, as compare to the initial substantial financial impact from Covid-19 in SPLY.

Relaxation to drive air travel recovery. Despite increasing Covid-19 cases (due to Omicron), regional ASEAN countries have not tightened travel restrictions and are in discussion to further relax cross-border travel requirements, as vaccination programs accelerate. Management guided that demand for travel is strong (especially domestic travelling), and numbers are gradually recovering to pre-pandemic level. We expect similar trend for regional travel once ASEAN countries are more receptive to regional cross border traveling to further enhance regional economy recovery.

Digital ventures. The group’s digital platform (ADE, AirAsia.com, Teleport, BigPay) continues to gain traction with increasing market share as the group expands market reach. ADE will be constructing its own MRO facilities at KLIA, commencing operation by mid-2024. SuperApp continues to expand its product range and market reach (into ASEAN), while leveraging onto the rise of travelling demand. Teleport continues to expand its capacity with more frequency, new routes and new hubs, while growing market share with last mile delivery. BigPay has reached more than 1m users and will be launching products such as personal loans, lending services, DuitNow services, savings products etc.

Liquidity. The group has completed its rights issue in raising RM1bn. In FY22, management is securing another USD225m loan from foreign lenders. In the meantime, the group continues to raise capital to finance the expansion of its aviation group and digital ventures. Management clarified that the group has achieved positive operating cash flow in 4Q21, averaging RM106m/month.

Forecast. Unchanged.

Upgrade to BUY, TP: RM0.84. Upgrade to BUY CapA with unchanged TP: RM0.84, based on unchanged 10x PE tagged to FY23 EPS on improving air-travel outlook, coupled with share price weakness. Key risk is its PN17 status, affecting the attractiveness of the counter – management is still engaging Bursa and investment bankers to address its PN17 issue.

Source: Hong Leong Investment Bank Research - 1 Mar 2022