Air travel recovering. During the recently concluded 2Q22 results, we gather that the regional air travel demand recovery remains on track as ASEAN countries have relaxed cross-border travel requirements. AirAsia Malaysia posted 20ppts growth in load factor to reach 84%, with passengers carried surged by a whopping 1276% to 3.8m passengers. Similarly, AirAsia Indonesia and AirAsia Philippines recorded much improved load factors at 77% (+10 ppts) and 93% (+15 ppts), respectively. Tracking the recovering air flight demand, CAPITALA is in the midst to increase its operating aircraft from 108 units to 157 units by end Dec 2022, with overall capacity expected to reach 60-90% of the pre-pandemic level.

PN17 status. While the recovery outlook for the aviation sector seems promising, the lingering concern over CAPITALA’s PN17 status remains a sentiment dampener. Nevertheless, we gather that the regularization plan is currently being finalized and will be submitted to Bursa Malaysia soon (deadline: Jan 2023). Despite the lack of details, we are hopeful about CAPITALA’s restructuring plan as the management managed to convince auditor E&Y on the group’s cash flow ability for the next two years, which HLIB projects a positive cash flow over the same period. Also, referring to management guidance, in which new equity raising is not part of the plan, we are not overly concerned about the dilution risk as well. As far as its PN17 status is concerned, we think the tepid sentiment in CAPITALA will turn around once the regularisation plan is approved by the exchange, posting a short-term trading oriented opportunity.

Digital ventures. The group’s digital platforms (ADE, AirAsia.com, Teleport, BigPay) continues to gain traction with higher revenue and customer base as the group expands market reach. ADE remains profitable due to high demand for MRO services, while SuperApp managed to achieve EBITDA positive with the continued growth momentum of MAU and transactions in 2QFY22.

Building a base. Technically, CAPITALA is currently is building a strong base at RM0.58-0.60 levels. A successful breakout above the RM0.66 resistance will spur greater upside towards RM0.70-0.77-0.84. Cut lost at RM0.56.

Source: Hong Leong Investment Bank Research - 6 Sept 2022