This article first appeared in The Edge Financial Daily on August 16, 2018
AirAsia Group Bhd
(Aug 15, RM3.37)
Reiterate outperform with an unchanged target price (TP) of RM4.80. Yesterday, AirAsia announced the disposal of its remaining 25% in AAE Travel Pte Ltd (AAE) to Expedia Southeast Asia Pte Ltd (Expedia SEA) for a total consideration of US$60 million (RM240 million). The transaction is expected to book in gains of disposal of about RM181.6 million, to be concluded by third quarter of financial year 2018 (3QFY18).
We are positive on the disposal as it is in line with AirAsia’s strategic direction to focus on their core airline business by growing its aircraft operating certificates (AOCs) to result in lighter balance sheet with net gearing reduced from 0.9 times to 0.87 times. Nonetheless, we do not expect any special dividends from this particular disposal as we believe that it would be used for working capital.
Moving forward, AirAsia is targeting One AirAsia to consolidate and own 100% effective stakes in Thai (current effective interest 45%), the Philippines (current effective interest 19.6%), and Indonesia (current effective interest 49%) operations through share swaps. They are also targeting to list the Philippines AOC by 2019.
For FY18, AirAsia plans to place higher focus on their domestic routes by transferring out their longer haul four-hour flights to AirAsia X Bhd for shorter haul domestic flights, which have shorter turnaround time and hence improving profitability from higher plane utilisation.
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.
Post-disposal of AAE, we raise our estimated FY18 net profit by 12% after factoring in the gain from the disposal. However, we made no changes to our FY18-FY19 expected core net profit as we deem the disposal gain to be non-core earnings.
Reiterate “outperform” but with sum-of-parts-derived TP of RM4.80 pegged with a price-earnings ratio (PER) of nine times based on its expected earnings for FY18 (four-year average) on its core earnings, coupled with 78 sen a share special dividend. — Kenanga Research, Aug 15