Reported core LATMI of -RM168.0m for 4QFY22 and -RM2.4bn for FY22, within HLIB’s FY22 expectation (99.2%) and consensus (102.7%). We expect continued recovery momentum with turnaround in FY23, driven by the group’s ongoing capacity expansion momentum (in tandem with the robust air travel demand), eased jet fuel price trend and softened USD (against regional currencies). Maintain BUY with an unchanged TP: RM0.88 (8x FY24 FD-PE). PN17 restructuring exercise is still on track, which will provide further upside to our TP.

Within expectations. CapA reported lower core LATMI -RM168.0m for 4QFY22, further dragged FY22 to LATMI -RM2.4bn. The results were within HLIB’s FY22 expectation (99.2%) and consensus (102.7%). We expect turnaround in FY23 as air travel demand remains robust with continued AirAsia’s aircraft capacity reactivation especially into Northern Asia markets, along with depreciation of USD (vs. regional currencies), lower jet fuel price, and continued growth traction of digital segment.

QoQ/YoY. Core LATMI narrowed further by -80.8% QoQ/-74.9% YoY attributed to increasing group wide revenue following higher business volumes as more countries’ borders reopen and the group reinstating its capacity (including associate TAA) and the reversal of provision of maintenance during the quarter (given that the group has over-provided during the earlier 9MFY22 period).

YTD. Core LATMI improved -13.6% YoY, mainly due to higher group revenue (following increase in air travel demand), which was partially offset by higher full losses recognition from associate TAA (following restructuring exercise completed in 2022), appreciated USD and higher jet fuel costs for the year.

PN17 status. Regularization plan is currently being finalized and will be submitted to Bursa by early 2QFY23. Overall plan is for CapA to transfer out Aviation Group (all of the AOCs) to existing shareholders, which will subsequently be acquired by AAX (to be renamed as Aviation Group). The exercise will address the negative shareholder’s equity issue for both CapA and AAX. Post restructuring, CapA will be a pure aviation services and digital group (see Figure #10) and AirAsia Group (previously AAX) will own all the AOCs.

Air travel recovery. Air travel demand recovery remains on track as more countries have reopened borders (China recently) and relaxed travel requirements. Management guided to reactivate 150 aircrafts by end 1QFY23, 166 by end 2QFY23 and all 205 by end 3QFY23 (from current 126). Management also remains positive on current yield environment as demand remains robust. Cambodia operations is targeted to commence operation by October 2023.

Digital ventures. Digital platforms (ADE, AirAsia.com, Teleport, BigPay) continues to gain traction in 4QFY22. CEO Tony is suggesting to list these assets on the SGX as soon as this year, which will enable value realization for the group. The segment has strong leverage onto the booming growth of the aviation segment.

Forecast. Unchanged.

Maintain BUY, TP: RM0.88. Maintain BUY on CapA with an unchanged TP of RM0.88, based on unchanged 8x FD PE tagged to FY24 EPS, as the group continues to leverage onto the improving air-travel outlook in the region. We expect further potential upside to our target price should the PN17 regularisation plan be successfully executed.

Source: Hong Leong Investment Bank Research - 1 Mar 2023