Capital A (CapA) has announced the disposal of its remaining 16.33% stake in AirAsia India for RM89.3m cash. The cash proceeds will strengthen its cash coffer and address its ongoing liquidity concern. We are overall positive with the announcement as CapA needs to strengthen its balance sheet and focus on the group’s recovery within its core ASEAN market. Maintain BUY with an unchanged TP: RM0.88, based on unchanged 8x FY24 PE (FD).

NEWSBREAK

Capital A (CapA) announced the disposal of its remaining 16.33% stake in AirAsia India (AAI) for a gross proceeds of INR1.6bn (USD18.8m or RM89.3m). CapA will not be recognising gain or loss on the disposal as the disposal price is matched to its fair value. Post disposal, CapA will not hold any equity interest in AAI and the Brand License and Technical Services Agreement between AirAsia Berhad (subsidiary of CapA) and AAI will be terminated after 12 months from the date of termination of the shareholders agreement between the parties or at an earlier date as may be intimated by AAI.

HLIB’s VIEW

Overall positive. While it pains for CapA to completely exit India market, we believe this is a positive short term measure for CapA to focus on its core ASEAN market for now. CapA will receive RM89.3m in strengthening its cash coffers and addressing its ongoing liquidity concern as the group continues to recover from Covid-19 pandemic. Almost all countries (except for China) have opened up their borders and relaxed travel restrictions. We believe CapA will be able to leverage on the recovery of regional air travel demand. Over the longer term, when CapA’s balance sheet has strengthened, we believe CapA will again explore opportunities into expanding the group’s network and market reach.

Forecast. Unchanged.

Maintain BUY, TP: RM0.88. Maintain BUY recommendation on CapA with an unchanged TP of RM0.88, based on 8x FD PE tagged to FY24 EPS, as the group leverages on the recovery of air travel demand in the region with countries further reopening their borders and the easing of jet fuel prices.

Source: Hong Leong Investment Bank Research - 3 Nov 2022