INVESTMENT HIGHLIGHTS

• Listing of its Indonesian arm

• Enlarge funding by tapping into the Indonesian equity market

• Maintain BUY with unchanged target price of RM4.02

In a Bursa filing last week, Air Asia has announced the completion of its Indonesian arm, Indonesia Air Asia’s (“IAA”) listing via a reversetakeover exercise with PT Indonesia Air Asia (“AAID)”. This was pursuant to the AAID’s acquisition of a 57.3% stake in IAA.

AAID recently raised RM1.1b via rights issue. Prior to the acquisition exercise, AAID has recently completed a rights issue, raising IDR3.4t (RM1.1b), while at the same time divested its coal trading and transportation business for IDR26.0b (RM7.8m). It was noted that the proceeds will be used for working capital purposes. We note that AirAsia Investment Limited (AAIL) continues to hold a 20.95% direct interest in IAA. Following the transfer of IAA perpetual securities amounting to IDR1.3t to AAID, this transaction translated into 47.7% shareholding ownership in the listed AAID.

Rationale of IAA’s listing: 1) To support the financing needs of IAA through rights issue or private placements. 2) To unlock the value of AirAsia Berhad’s investment in IAA 3) Improve the visibility and transparency of IAA

Enlarge funding by tapping into the Indonesian equity market. IAA’s listing on the IDX would allow it to tap into the Indonesian equity markets for funding. We opine that this would reduce its reliance to AirAsia. At the same time it would also allow AirAsia to unlock the value of IAA as a listed entity. We note that the listing of IAA followed the listing of AirAsia business entities in the stock markets in Malaysia and Thailand. Following from this, the management indicated that the listing of its Philippines arm will possibly take place in FY18.

Maintain BUY with unchanged TP of RM4.02. As we are positive on the news, we maintain our BUY recommendation for AirAsia. Our TP derived from a forward price-to-earnings ratio of 10x FY18 EPS. We like Air Asia because of the company continuous efforts to reinvent itself, introducing new digital offerings to ensure that it stays relevant in a highly competitive industry. Air Asia remains our top pick for the aviation sector predicated on: 1) stable demand growth with conservative ASK expansion of +10.0%; 2) new areas of growth in Air Asia India and Air Asia Japan.

Source: MIDF Research - 2 Jan 2018