FY21 Core Net Loss (CNL) came in below expectations at RM851m compared to our/consensus loss estimates of RM722m/RM1,669m. The results came in below our estimate due to slower-than-expected recovery in air travel which prompts us to widen our loss forecast. Our TP is lowered from RM0.74 to RM0.65 based on 14x FY23E EPS. Reiterate Market Perform.

Results review. 1QFY22 revenue more than doubled to RM811m from both aviation and digital business as travel restrictions were relaxed across the region. The Group introduced additional capacity of 238% YoY to support the surge of demand following the further relaxation of travel protocols domestically by Malaysia, Indonesia and the Philippines. Load factor came in at 76% with 284% increase in passengers carried. AirAsia Malaysia’s number of passengers carried and capacity improved by 464% and 455%, respectively YoY, on the back of the resumption of a significant number of additional domestic flights, and the relaunch of numerous domestic routes to connect people between major cities, particularly during the festive season. AirAsia Indonesia also achieved a much-improved load factor of 76% in 1QFY22 vs. 56% 1QFY21. Additional frequencies were added for domestic flights to meet the huge pent-up demand especially between Jakarta and Denpasar, and Jakarta and Medan. AirAsia Philippines continued to record the Group’s highest quarterly load factor at 86%, which rose by 12ppt YoY, uninterrupted by the steep rise of Omicron variant cases in the Philippines during the quarter. Airasia Super app revenue rose 189% driven by continued resurgence of travel demand from borders reopening. As a result, the average Monthly Active Users (MAU) was at 10.7m (+137% YoY), rising across all markets due to travel picking up. Bigpay’s user base grew 64% YoY and revenue jumped 28% led by continued growth in both payments and remittance businesses. This led to a marginally narrower EBITDA loss. Teleport’s 1QFY22 EBITDA losses narrowed to RM5.1m vs RM9.8m in 1QFY21 on the back of a 57% increase in top-line. This brings 1QFY22 core net loss to RM851m compared to RM628m in 1QFY21 due to stringent cost containment and the absence of fuel swap losses.

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 lowered entry requirements from 1st March 2022. For the digital segment, airasia Super App is expected to grow noticeably off the back of the continued resurgence of travel demand from border reopening and tactical campaigns, alongside expected growth from airasia Food, airasia Ride and airasia Xpress. Additionally, Teleport is expected to continue growing throughout 2022 as it adds new international lanes and delivery hubs. In March 2022, BigPay fully launched the digital lending platform to provide new loan products. Currently, BigPay Later Personal Loans is available to selected users and will be progressively rolled out to a wider base.

We now forecast a wider net loss of RM1,572m compared to a loss of RM722m due to the longer-than-expected air travel recovery. No change to our FY23E earnings.

Maintain Market Perform. Our TP is lowered to RM0.65 from RM0.74 based on 14x FY23E EPS (previously 16x) due to the slower-than-expected recovery in air travel.

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

Source: Kenanga Research - 27 May 2022