• Record RM2.44bn of headline net losses in 4Q20 due to weak revenue, impairment, fuel hedging losses and high deferred taxes, cushioned by forex & disposal gains. Highest core net loss of RM1.1bn in its history
• While results were grossly below expectations, management made good progress in private placements and we expect AirAsia to have sufficient liquidity for 2021
• We expect AirAsia to report larger losses in 2021-22E on prolonged closure of borders and slower-than-expected recovery in tourism. Maintain SELL with a revised target price of RM0.75 based on 5.8x 2022E EV/EBITDA

Record High Losses in 4Q20 to End a Dreadful Year

AirAsia reported headline net loss of RM2.44bn in 4Q20, a historical high due to weak revenue, large impairment charges on ROU assets / receivables, fuel hedging losses and the recognition of deferred tax, partly cushioned by forex, disposal and derivatives fair value gains. The results were below market and our expectations. Excluding the one-offs, 4Q20 core net loss of RM1.13bn was due to weak revenue. Sequentially, 4Q20 revenue from the Malaysia’s airline operation slipped by 68% qoq to RM113m after the reimplementation of movement control orders while the revenue from Indonesia and Philippines had improved by 413% and 60% qoq, respectively.

AirAsia Should Have Sufficient Liquidity for 2021

AirAsia has completed two tranches of private placements which raised gross proceeds of RM336m. These private placements form part of its RM2.0-2.5bn overall fundraising plans, to ensure sufficient liquidity for the group even if international borders remain closed. AirAsia has secured commitments from banks for a RM1bn loan under the Danajamin PRIHATIN Guarantee Scheme in Malaysia. However, Danajamin has yet to approve it. Also, during a recent interview with The Edge, AirAsia Group CEO Tan Sri Tony Fernandes said AirAsia is targeting to raise RM800m to RM1bn from a rights issue of new shares.

Cutting 2021-22E Earnings Forecasts, Expecting Larger Losses

We cut our 2021-22E earnings forecasts, expecting AirAsia to report larger core net loss of RM1.4bn in 2021E due to the reimplementation of MCO/CMCO in Malaysia during 1Q21, prolonged closure of borders and longer-than-expected timeframe for the Covid-19 immunization program. We now anticipate AirAsia to report net loss of RM92m in 2022E (from net profit of RM238m) due to slower-than-expected recovery in international tourism.

Source: Affin Hwang Research - 30 Mar 2021