AirAsia X Bhd
(April 30, 41 sen)
Maintain fully valued with a target price (TP) of 47 sen: AAX has announced the details of its rights issue: The rights issue price has been fixed at 22 sen per share, at an entitlement basis of three rights shares for every four existing AAX shares. The rights issue comes with a free warrant for every two rights shares subscribed, with an exercise price of 46 sen.

The major shareholders will subscribe to their portion of the rights issue (51%), while the remaining 49% will be underwritten by a consortium of investment banks (CIMB Investment Bank, MIDF Amanah Investment Bank and Kenanga Investment Bank). The rights issue will raise RM391.1 million for the group.

It is expected to bring down AAX’s financial year 2015 ending December (FY15F) forecast net gearing to 1.4 times (against a previous forecast of 3.3 times). We remain wary of execution risks in its efforts to turn around AAX. Despite cheaper fuel prices, we think much of fuel cost savings will be passed on to consumers, given the intense competition and dampened consumer spending following the implementation of the goods and services tax. Also, the stronger US dollar will continue to put pressure on AAX’s unit costs and debt burden

We retain our “fully valued” rating with an unchanged pre-rights TP of 47 sen (1.7 times FY15F price-to-book value), pending the results. Post-rights issue, our ex-rights target price will be adjusted to 36 sen. Book value erosion remains a concern as we do not expect AAX to turn profitable in the near term. — AllianceDBS Research, April 30

This article first appeared in The Edge Financial Daily, on May 5, 2015.