AirAsia has proposed to establish the Sukuk Mudharabah Programme as  part  of  the  group’s  funding  plans  to  raise  up  to  RM1bn.  Proposed utilisation of proceeds include; i) RM550m to part finance its capex; ii) RM300m to refinance its banking facility; iii) the balance will be used for working  capital.  The  programme  will  be  perpetual  in  tenure,  where AirAsia has a call option to redeem the Sukuk at the first call date, which is at the end of the fifth, seventh or 10th year. (Source: Bursa Malaysia).

Comment:  AirAsia’s  main  capex  includes  aircraft  delivery  and  the building  of  its  headquarter  office  at  the  KLIA2  site.  The  airline  is scheduled to take delivery of 13 aircraft in 2015 and 18 aircraft in 2016 and 2017 respectively. As at end-June 14, its net gearing stood at 1.9x. We  have  imputed  capex  of  between  RM1.7bn  to  RM2.4bn  for  2014E and 2015E respectively. Maintain BUY with an unchanged target price of RM2.80 (12x 2015E PER).

Source: Affing Hwang Capital Research - 31 Oct 2014