QFY21 Core Net Loss (CNL) came in at RM628m compared to our/consensus net loss estimates of RM1,612m/RM1,577m. The results came in below our expectation due to lower-than- expected passengers carried amidst sharply reduced capacity. Cut our FY21E assumptions and hence forecast a net loss of RM2,064m instead of RM1,612m. Despite renewed optimism on air travel following the increasing availability of vaccines we expect AirAsia to face a tough operating environment over the next three to four quarters, still derailed by widespread travel disruptions due to COVID-19. Our TP is kept at RM0.70 based on 9x FY22E EPS. Reiterate UP.

YoY, 1QFY21 revenue contracted 87% amid the unprecedented world- wide travel restrictions due to the Covid-19 pandemic. 1QFY21 group consolidated AOCs (Malaysia, Indonesia and Philippines) reported 10ppt decline in load factor to 67% on the back of a sharply reduced capacity of 88% to merely 1.5m seats. This was also reflected in an 88% decline in ASK. For 1QFY21, 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 73% despite travel demand during the quarter was softened by the lockdown and interstate travel restrictions imposed since January 2021.

AirAsia Philippines leveraged a strong rebound in travel demand in 1QFY21 registering a passenger increase of 43% compared to 4Q 2020. A month-on-month breakdown showed that AirAsia Philippines grew its number of passengers by 57% despite only increasing 30% in operating capacity in March 2021 as compared to February 2021. AirAsia Thailand posted a 65% QoQ decline in passengers carried due to lower travel demand caused by the new wave of the Covid-19 pandemic in Thailand which began in the middle of December 2020. Group CASK (+260%) rose faster than RASK (-2%). This brings 1QFY21 core net loss to RM628m compared to RM772m in 1QFY20. QoQ, losses narrowed from RM2,011m to RM628m due to higher revenue (+12%), coupled with lower CASK (-9%) and a higher RASK (+6%) as losses from the fuel hedge swap declined by 92% to RM30m.

Outlook. We expect AirAsia to face a tough operating environment over the next three to four quarters, still derailed by widespread travel disruptions due to COVID-19. However, rising availability of vaccines has renewed optimism for air travel returning to normal sooner than later. 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 completion. 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.

Cut our FY21E assumptions and hence forecast a net loss of RM2,064m instead of RM1,612m. However, we maintain our FY22E earning forecast due to renewed optimism on air travel following the rising availability of vaccines.

Reiterate UP. TP maintain at RM0.70 based on 9x FY22E EPS. Reiterate UP.

Risks include faster-than-expected reopening.

Source: Kenanga Research - 28 May 2021