This article first appeared in The Edge Financial Daily on January 10, 2018

KUALA LUMPUR: AirAsia Bhd’s share price ascended to an all-time high of RM3.74 yesterday after the low-cost carrier obtained the green light for an internal reorganisation that would enable it to unlock the value of each operating unit in the region.

The stock gained 15 sen or 4.18% yesterday with 26.36 million shares traded.

According to Bloomberg data, 18 research houses have “buy” calls on AirAsia, four “holds” and two “sells”, with an average 12-month consensus target price of RM3.74.

While the airline’s share price is on a steady climb, analysts do not expect the reorganisation to have any immediate significant impact on the group.

“The transfer of the listing status of AirAsia Bhd to AirAsia Group Bhd (AAGB) does not have an impact on the group. However, the group’s structure would be more simplified, making it easier to list its subsidiaries,” said Hong Leong Investment Bank Bhd (HLIB) analyst Daniel Wong.

Despite the sharp rise in share price, AAGB founder and group chief executive officer Tan Sri Tony Fernandes expressed his grouses at a press conference on Monday that AirAsia has not been fairly valued by analysts as no value is ascribed for the group’s operations in Thailand, Indonesia and the Philippines, which is why the group is now ascribing value to each of its associates through the reorganisation.

However, analysts noted it is not easy for them to value the associates due to the lack of information.

Wong said the reorganisation could give better valuation for the group, if the earnings performance of each subsidiary is properly segregated.

“If everything is jumbled up under the holding company, we cannot separate the loss-making units from the profitable ones, which will give AirAsia a lower valuation. But if the information on the loss-making and profitable entities are properly segregated, it could give a better valuation as we can assume zero valuation for the loss-making units,” he said.

Public Investment Bank Bhd analyst Nur Farah Syifaa Fuad said the research house’s valuations did not include the associates’ operations because of the lack of information.

“It’s quite difficult for us to value the other operations. We know the growth trend and factors for Malaysia but for the Philippines and Indonesia, it is difficult to forecast. We need to get more information from the management before we can fully adjust the numbers,” she said.

Wong expects AirAsia to remain on its growth trajectory based on the group’s capacity expansion and high load factors.

“Demand is still sustainable. Yields may be down, but it’s nothing to worry about as the ancillary income should be strong enough to sustain growth,” he said.

He added that the impact of higher jet fuel price due to the recovery in crude oil prices will be offset by a strengthening ringgit and improving operational efficiency.

Under the group’s reorganisation, AAGB will be taking over the listing status of AirAsia and housing all the group’s subsidiaries across the region through a one-for-one share swap deal.

AAGB will assume the listing status of AirAsia as an investment holding entity by March this year, while the latter will focus on its airline operations.