AIRASIA is selling its remaining 25% stake in AAE to Expedia SEA for USD60.0m (RM240.0m). Positive on the disposal as it is in line with group's direction to focus on core business and will lighten the balance sheet. BUY with a Target Price of RM4.80 pegged to 9.0x FY18E PER (4-year average), coupled with RM0.78/share special dividend. AIRASIA's net gearing has improved post Asia Aviation Capital (AAC) disposal coupled with further asset monetization plans from Santan/Red Cargo/Expedia to honour their intention for special dividends every two years. We foresee immediate catalyst from the finalization of special dividends (est. RM0.78) from the recent sale of AAC (USD1.1 bn or RM4.4bn) in March. 

AIRASIA's disposal of its remaining 25% in AAE Travel Pte Ltd (ME) to Expedia Southeast Asia Pte Ltd (Expedia SEA) for a total consideration of USD60.0m or RM240.0m based on an exchange rate of USD1.00 to RM4.00. The transaction is expected to book in gains of disposal of c.RM181.6m, to be concluded by 3Q18. We are positive on the disposal; (i) as it is in line with AIRASIA's strategic direction to focus on their core airline business by growing its Air Operator Certificates (ADCs), and (ii) lighter balance sheet with net gearing reduced from 0.90x (as of 1Q18) to 0.87x. Nonetheless, we do not expect any special dividends from this disposal as we believe that it would be used for working capital. 

Moving forward, AIRASIA strives for One AirAsia whereby they intend to consolidate and own 100% effective stakes in Thai (current effective interest 45%), Philippines (current effective interest 19.6%), and Indonesia (current effective interest 49%) operations through share swaps. They are also targeting to list Philippines AOC by 2019. For FY18, AIRASIA plans to place higher focus on their domestic routes by transferring out their longer haul 4-hour flights to AAX. 

We expect further improvement in utilisation post restructuring of routes. In terms of further asset divestment, we are looking forward to potential sale of Santan and Red Cargo. 

Source: Rakuten Research - 16 Aug 2018