KEY INVESTMENT HIGHLIGHTS

• AAGB recorded a normalised net loss of - RM975.20m in 2QFY20

• Premature to estimate any life-saving earnings from digital businesses

• July and August robust domestic pickups are coming from low base

• Liquidity issue is only partially solved at this juncture

• Recovery prospects remains cloudy

• Maintain Trading Sell at a revised TP of RM0.40 per share

Earnings dragged by Covid-19 measures. AAGB was hit hard following a slew of Covid-19 triggered events which have highly impacted its business operations during the quarter. This has resulted in AAGB recording a 2QFY20 normalised net loss of –RM975.20m (- 54.7%qoq and -321.4%yoy). This is on the back of RM68.03m 2QFY20 revenue (-96.9%qoq and -97.6%yoy) arising from: (i) planes being grounded for several months and; (ii) higher operational costs, among others.

Seeing red across the segment. In general, consensus’ negative sentiment was en-pointe as operating statistics were lower across the board. Similar to financial results, on YoY basis, at both subsidiaries and group level, most of key operating metrics (ASK, RPK, etc.) saw above 90% decline with group load factor at 59%. These dismal operating figures support the poor financial performance of 2Q20. However, AAGB also announced that is has seen a pick-up in key operational metrics in June as compared to May, signaling a potential inflection point. We opine that these improvements are still too minute at this juncture to offset the deep contraction in 2Q20.

Pivoting to Air Asia Digital. AAGB announced that the company is now consists of two main groups: Airline (AirAsia) and Digital (airasia DIGITAL). The traditional group consists of AOCs and other airlines, F&B, Engineering and Ground Handling. On its non-traditional segment, the Management grouped its key digital business to a few divisions: platform (airasia.com), logistics and eCommerce (teleport) and financial services (BigPay and Big Loyalty). This move reaffirms Management’s determination in diversifying its core earnings away from traditional airline business model while retaining its competitive edge and know how in the tourism business. Despite the aggressive marketing of its digital platform, at this juncture, it is still premature to estimate any earnings contribution from this segment as the businesses are still loss making and small relative to the overall group.

Source: MIDF Research - 26 Aug 2020