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AirAsia’s fate: Two extremist views from CGS-CIMB and Maybank

Tan KW
Publish date: Mon, 17 Jan 2022, 03:37 PM

Pessimistic tone

AS a Practice Note 17 (PN17) listed company, AirAsia Group Bhd can be subject to panic selling even as the prospect of a suspension and delisting is at least 21 months away.

According to CGS-CIMB Research’s rationale, the budget carrier is obligated to submit a regularisation plan to Bursa for approval within 12 months after which it will have six months to execute the plan – and must record a net profit in the two consecutive quarterly results after the completion of the implementation of the plan.

“If AirAsia Group fails in any of these steps, then suspension of trading and delisting will follow, so it may take at least 21 months before AirAsia Group is potentially suspended or delisted,” opined analyst Raymond Yap in a company update.

All-in-all, CGS-CIMB Research reiterated its “reduce” stance on AirAsia Group with an unchanged RNAV (revalued net asset value)-based target price of 14 sen as “we think it may be very difficult for AirAsia Group to recover from this blow”.

“A potential PN17 classification has negative implications for AirAsia Group’s share price as we believe most institutional investors would not be permitted by their mandates to invest,” noted the research house.

“Retail investors may panic and dump the shares. De-rating catalysts include credible information that a new ultra-low-cost carrier (ULCC) airline is currently in the process of seeking regulatory approval to set up in Malaysia, having signed deals to lease two A320s at cheap leasing rates.”

Moreover, Malindo Air may also pull back aircraft from Indonesia into Malaysia once demand recovers sufficiently in Malaysia.

“Potential upside risks include a possible containment of the pandemic once the Omicron wave passes, and if AirAsia Group secures a higher-than-expected lease-rate discount from its aircraft lessors,” added CGS-CIMB Research.

Optimistic tone

Meanwhile, Maybank IB Research noted that AirAsia Group was classified as a PN17 listed issuer due to its negative shareholders’ equity position (end-3Q 2021: -RM3.2 bil) after suffering seven quarters of heavy losses due to the COVID-19 pandemic.

Against the backdrop of AirAsia Group’s fundamentals having improved with its airlines actively flying again, the research house has retained its “buy” call on the airline with an unchanged SOP (sum-of-part)-based target price of RM1.31.

“Compare and contrast this to its cash flow where it raised RM2.6 bil (private placement: RM336 mil; Danajamin backed loan: RM500 mil, RCUIDS rights issue: RM974mil; investment in BigPay: US$100 mil; foreign loan: US$100 mil) which we believe is enough to carry it through FY2022E,” justified analyst Yin Shao Yang.

In Maybank IB Research’s view, the PN17 status is salvageable with six ways that AirAsia Group can substantially narrow its negative shareholders’ equity:

  • Waiver of deferred aircraft leases (RM2.5 bil);
  • Listing of digital assets currently valued at US$1.2 bil (RM5.2 bil);
  • Reversal of impairment of right-of-use assets (RM552 mil);
  • Issuance of RCUIDS (RM974 mil) and warrants (RM650 mil);
  • Deconsolidate Indonesia AirAsia (IAA) and Philippines AirAsia (PAA) accounts; and
  • Sale of assets (eg maintenance, repairs and operations division).

“Currently, Malaysia AirAsia (MAA) is flying circa 33% of its aircraft, IAA and PAA are flying c.25%-33% of their aircraft and Thai AirAsia is flying c.50% of its aircraft which we believe is respectable given that it was as recent as 3Q 2021 when Southeast Asia was ravaged by the Delta variant of COVID-19,” added Maybank IB Research.

At 11.27am, AirAsia was down 3 sen or 4.84% to 59 sen with 38.96 million shares traded, thus valuing the airline at RM2.45 bil. – Jan 17, 2022

 

https://focusmalaysia.my/airasias-fate-two-extremist-views-from-cgs-cimb-and-maybank/

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