What Happened?

Capital A has entered into a non-binding letter of offer with AirAsia X (AAX) for proposed disposals of AirAsia Berhad (AAB) and AirAsia Aviation Group Limited (AAAGL) for a disposal consideration to be agreed upon by the company and AAX at a later date. The proposed disposals are subject to: 1) Capital A and AAX entering into a definitive share sale and purchase agreement (SSPA), and 2) the completion of the definitive agreement in accordance with the terms of the definitive agreement.

Other Salient Terms and Conditions of the Letter of Offer:

1. The disposal consideration is expected to be satisfied by AAX via cash in a sum to be agreed upon by the parties and/or issuance of new ordinary shares of AAX at an issue price to be agreed by the parties.

2. The Definite SSPA Will be Subject To:
   
   a. Shareholder approvals for the proposed disposals and other corporate exercise, which may include a proposed distribution-inspecie of part of the consideration shares to the shareholders of Capital A;
   
   b. Approval of RCUIDS Holders;
   
   c. Approval/consent of the relevant authorities, financiers/lenders or any third parties as may be necessary, being obtained by Capital A;
   
   d. The Completion of the Pre-completion Restructuring;
   
   e. The Sanction of the High Court of Malaya;
   
   f. The Approval of the Shareholders of AAX;
   
   g. Such other terms to be negotiated and agreed upon by the parties in the definitive agreement.

Our Views

From the risk perspective, we are positive as we deem the disposals are necessary to uplift Capital A from its PN17 status or risk triggering a trading suspension. Moreover, the shareholders of Capital A are expected to continue to hold shares in the aviation segment via AAX. According to announcement, the company is expected to record gain on dilution of interest in AAB and AAAGL as well as deconsolidation of AAB and AAAGL from Capital A as a result of the proposed disposals and thereby is expected to improve the shareholders’ equity of the group in its effort to regularise its financial conditions.

Impact

No change to Capital A’s earnings projections and financial standings, awaiting signing of definite agreement and negotiations on the disposal considerations.

Valuation

We maintain Capital A’s target price at RM0.85/share, which is based on a PE multiple of 10x CY24 earnings. We advise investors to stay out of Capital A’s restructuring exercise until having more clarity on the AAX share entitlement, which would depend on the price fixing of new AAX consideration shares and the final disposal considerations.

Source: TA Research - 9 Jan 2024