KUALA LUMPUR (March 27): Shares in low cost carrier AirAsia Bhd rose as high as 14 sen or 4.9% to RM2.99, after a report emerged that privately-held Korea Transportation Asset Management (KOTAM) has been picked as the preferred bidder to take up a controlling stake in the carrier's aircraft leasing business, Asia Aviation Capital Ltd.

At 2.47pm, AirAsia recorded some 19.68 million shares traded, and has pared some gains to trade at RM2.97 per share, up 4.2% or 12 sen.
 
Last Friday, Reuters — citing two sources — reported KOTAM was looking to buy a controlling Asia Aviation in a deal that would value the unit at around US$900 million, equivalent to some RM3.97 billion, with financing to be potentially provided by Korea Development Bank.
 
In a report released today, Nomura Research said if it were to take management's equity valuation of US$1 billion, the US$900 million reflects an enterprise value for 52.75% stake in Asia Aviation, with an estimated net debt of US$706 million.
 
“Hence, the cash value for a 52.75% stake would work out to a cash payment of US$527.5 million (RM2.33 billion) to AirAsia,” Nomura Research analysts Ahmad Maghfur Usman and Riddhi Jain said in the note to clients.
 
At US$900 million, Nomura Research noted the deal is valued at 14.6 times EV/EBITDA ratio and 15.6 times historical price-earnings, and is 1.9 times its current price-to-book-value, all of which are higher when compared with Asia Aviation peers.
 
“[The] premium is somewhat justified, as this price tag includes the valuation of future delivery slot allocations,” the two analsysts said, noting the implied valuation for future delivery slots works out to US$300 million, assuming a base case valuation of US$700 million.
 
“AirAsia is currently sitting in on a backlog delivery of 399 aircraft, [the] second-largest after [India-based] Indigo’s 413 aircraft,” Nomura Research said.
 
Established in September 2014, Asia Aviation — a wholly-owned unit of AirAsia — currently has 74 aircrafts — of which 38 are leased — and 14 engines.
 
Nomura Research also reckoned should AirAsia distribute the proceeds from its 52.75% stake divestment as special dividend, that would work out to be a payout of 70 sen per share, equivalent to a 24% yield, based on Friday’s closing price of RM2.85.
 
“If this [stake] sale is finalised before end of this month, AirAsia could also announce this special dividend at the same time they announce their Financial Year 2016 (FY2016) dividend — which has yet to be announced — which is going to be soon,” Nomura Research said, noting AirAsia had announced its FY2015 dividend on March 31 last year.
 
The research firm also noted on completion of the stake sale in Asia Aviation, AirAsia’s net gearing could be reduced to 67% from 134% in FY2016.
 
Nomura keeps its buy call on AirAsia, with an unchanged target price of RM3.72.