Its FY20 Core Net Loss (CNL) came in at RM4,649m compared to our/consensus net loss estimates of RM3,038m/RM3,057m. The results came in below our expectation due to lower-than-expected passengers carried amidst sharply reduced capacity. However, we raise our TP from RM0.38 to RM0.70 based on 9x FY22E EPS as we roll forward our valuation base from FY21E to FY22E and change our valuation methodology from PBV to PER due to renewed optimism on air travel following the widespread availability of vaccines. Reiterate UP.

YoY, 4QFY20 revenue contracted 92% amid the unprecedented world- wide travel restrictions due to the Covid-19 pandemic. 4QFY20 group consolidated AOCs (Malaysia, Indonesia and Philippines) reported 15ppt decline in load factor to 67% on the back of a sharply reduced capacity of 88% to merely 2m seats. This was also reflected in a 92% decline in ASK. For 4QFY20, the number of passengers carried was down 90% YoY. The average load factor was at a reasonable 67%, with Malaysia hitting a load factor of 72% despite the setback in October and November. AirAsia Indonesia posted a strong rebound in 4QCY20, as the number of passengers carried more than quintupled QoQ to 389,283 passengers, while load factor improved to 59%, up 10 percentage points from 3QCY20 as more flights resumed and travel restrictions eased. In December, AirAsia Indonesia more than tripled its operating capacity compared to November to match demand recovery. AirAsia Philippines carried 117,948 passengers in 4QCY20 and reported a load factor of 64%. AirAsia Thailand’s 4QCY20 operations exceeded expectations as it surpassed its pre-Covid domestic capacity by 7%. In Dec 2020, AirAsia Thailand operated at 116% of pre-Covid domestic capacity, as compared to 96% in September 2020. Group CASK (+71%) rose faster than RASK (-3%). This brings 4QFY20 core net loss to RM2b. FY20 revenue fell 75%, in tandem with lower passenger growth (-75%). Coupled with higher CASK due to fuel hedge losses as prices fell on the back of lower demand of oil, higher maintenance and depreciation and lease liabilities interest as a higher number of aircraft was on operating lease, this brings FY20 CNL to RM4,649m compared to a CNL of RM142 in FY19.

Cut our FY21E assumptions and hence forecast a net loss of RM1,610m instead of RM275m.

Outlook. We expect AirAsia to face a tough operating environment over the next two to three quarters, derailed by still widespread travel disruptions due to COVID-19. However, availability of vaccines has renewed optimism for air travel returning to normal sooner than expected. The group had in 1QCY21 completed two tranches of private placement, raising RM336m. The private placement is part of its plans to raise between RM2.0b to RM2.5b in a combination of debt and equity funding to ensure sufficient liquidity for the Group. The group has secured commitments from banks for government guarantee loan under the Danajamin Prihatin Guarantee Scheme and it is in its final stages of terms discussion and finalisation. In addition, AirAsia has ongoing 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 business.

Reiterate UP. However, we raise our TP from RM0.38 to RM0.70 based on 9x FY22E EPS. We roll forward our valuation base from FY21E to FY22E and change our valuation methodology from PBV to PER due to renewed optimism on air travel following the widespread availability of vaccines. Reiterate UP.

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

Source: Kenanga Research - 30 Mar 2021