FY21 Core Net Loss (CNL) came in below expectations at RM2,865m compared to our/consensus loss estimates of RM2,414m/RM2660m. The results came in below our estimate due to slower-than-expected recovery in air travel which prompts us to project a loss in FY22E instead of a profit. Our TP is lowered to RM0.65 from RM0.70 based on 14x FY23E EPS as we roll forward our valuation from FY22E to FY23E. Upgrade from UP to MP.

Results review. 4QFY21 revenue rose 118% YoY and 142% QoQ from both aviation and digital business as travel begin to relax across the region. AirAsia Group Berhad Consolidated AOCs recorded the highest quarterly load factor and capacity at 80% and 3.4m, respectively, in 4QCY21 since the beginning of the Covid-19 pandemic. Passengers carried increased 103% to 2.7m YoY in 4QCY21 which surpassed the capacity increase of 70%, leading to a 13ppt improvement in load factor to 80%. ASK grew by 72% YoY, primarily attributable to strong demand from the introduction of quarantine free travel bubbles for Malaysia and the easing of travel restrictions in 4QCY21. YoY, 4QCY21 AirAsia Malaysia passengers carried and capacity increased by 164% and 139%, respectively. Load factor increased by 7ppt YoY and 19ppt QoQ to 80% in conjunction with the year- end festive season and increased frequencies on high demand routes including between Kuala Lumpur and Langkawi, followed by the Kuala Lumpur to Kota Kinabalu route in November and December 2021. AirAsia Indonesia posted a high load factor of 81% in the 4QFY21, which grew 22ppt YoY driven by increased frequency of flights in line with growing demand, particularly in December 2021. AirAsia Philippines continued to outperform with load factor achieving 85% for the 4QFY21 as a result of strong pent-up demand in a number of core destinations including Cebu, Cagayan de Oro, Boracay, and Tacloban. 4QFY21 Teleport revenue grew 274% YoY thanks to the strategic growth of cargo network, undertaken to compensate the 90% reduction to pre-pandemic passenger network capacity. EBITDA returned to the black in 4QFY21 as cargo margins improved significantly during 4QFY21 as well as the network was optimised to take advantage of the seasonal upturn in yields. Airasia Super app revenue grew by 51% YoY driven by Travel vertical, Airasia ride, and breakage income which brings in a positive EBITDA of RM8.9m (3QFY21: EBITDA losses of RM70m). BigPay continued to focus on growth with strong market adoption, accelerating user growth momentum which led to wider EBITDA losses of RM47m compared to RM33m in 3QFY21. This brings 4QFY21 core net loss to RM906m compared to RM2011m in 4QFY20 due to stringent cost containment and the absence of fuel swap losses bringing FY21 core net loss narrowing to RM2.9b from RM4.3b in FY20.

Outlook. While we expect a gradual recovery in air travel beginning 2H 2022, delayed border openings and inconsistent entry requirements for travellers may delay a stronger-than-expected tourism recovery in the short term. However, further easing of travel restrictions alongside reduced quarantine requirements and better testing procedures, will support a strong air travel revival in the coming quarters. The Thai government has resumed its quarantine-free travel scheme from 1st February and is lowering entry requirements from 1st March 2022. The return of the vaccinated travel lane (VTL) between Malaysia and Singapore from 24 January 2022 and the reopening of the Philippines to fully vaccinated international travellers without quarantine are positive factors. With leaner and more optimised airline operations, and as more restrictions continue to ease, we expect the current sales momentum and reduced cash burn trend to continue through 2022. Through various fund-raising exercises, the Group has raised more than RM2.5b in the last two years.

We now forecast a net loss of RM722m in FY22E compared to a profit of RM261m due to the longer-than-expected air travel recovery. We introduce FY23E earnings.

Upgrade from Underperform to Market Perform. Our TP is lowered to RM0.65 from RM0.70 based on 14x FY23E EPS as we roll forward our valuation from FY22E to FY23E. Upgrade from UP to MP.

Upside risks include faster-than-expected economy reopening and a successful US listing of its digital business.

Source: Kenanga Research - 1 Mar 2022