In an announcement to Bursa Malaysia, AirAsia is proposing a private placement of 668.4m new shares or 20% of its existing outstanding shares. For illustrative purposes, based on the indicative issue price of RM0.68, the proposed private placement is expected to raise gross proceeds of up to approximately RM454.5m. We view this latest development positively as an interim measure to address its immediate cash flow requirements during this on-going pandemic. We maintain our TP of RM0.38 based on 1.07x FY21E BVPS. Maintain UNDERPERFORM.

Proposed 20% private placement. In an announcement to Bursa Malaysia, AirAsia is proposing a private placement of 668.4m new shares or 20% of its existing outstanding shares. We view this latest development positively as an interim measure to address its immediate cash flow requirements during this on-going pandemic. The issue price of the new shares is expected to be determined at a later date. For illustrative purposes, based on the indicative issue price of RM0.68, the proposed placement of the new shares could raise up to approximately RM454.5m which is expected to be utilised for fuel hedging settlement (RM146.6m), aircraft lease & maintenance payments (RM95.2m), AirAsia Digital (RM76.9m) and general working capital expenses (RM135.6m).

Outlook. However, in the fourth quarter of 2020, there has been a spike in cases in Malaysia which has led to a majority of states being placed under Conditional Movement Control Order while inter-state travel has also been banned except for essential travel. Accordingly, AirAsia Malaysia has reduced its capacity in October and November 2020. AirAsia Group is looking forward to the gradual reopening of domestic travel and international borders in recognition that air transport provides the connectivity that is essential for the resumption of economic activities. Over the medium term, we expect AirAsia to face a tough operating environment already derailed by widespread travel disruptions due to COVID-19, and hits from lower load factor. In an effort to reduce operating expenses, the group has undertaken cost cutting measures such as right sizing of manpower, salary cuts for management, staff and directors, negotiation of deferrals with lessors, suppliers and partners, and restructuring of fuel hedging positions. In Malaysia, the group is securing commitments from banks for the government guarantee loan under the Danajamin Prihatin Guarantee Scheme. Elsewhere its Philippines and Indonesia entities are currently in various stages of bank loan applications. In addition, AirAsia has on- going deliberations with a number of parties for joint ventures and collaborations that may result in additional third-party investments in specific segments of the group's businesses.

Reiterate UP. We maintain our TP of RM0.38 based on unchanged 1.07x FY21E BVPS. Reiterate UP.

Risks include higher-than-expected RASK, lower-than-expected CASK and better-than-expected load factor.

Source: Kenanga Research - 22 Jan 2021