AirAsia selldown today could only be first wave, MACC outcome to determine final wave — analyst

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KUALA LUMPUR (Feb 3): The more than 10% fall in the share prices of both AirAsia Group Bhd (AAGB) and AirAsia X Bhd (AAX) this morning following news that broke over the weekend on corruption and bribery allegations against the low-cost carriers and Airbus amounting to US$50 million (about RM204.8 million) could only be the first wave, while the Malaysia Anti-Corruption Commission's (MACC) next course of action will determine the final wave.

AAGB tumbled as much as 11% earlier this morning, before paring some of its losses to trade at RM1.31 — down 8.39% or 12 sen — at 11.30am. Notably, its current share price has fallen some 24% versus its target consensus of RM1.72.

With 32.67 million shares traded at the time of writing, this made AAGB one of the top actively traded stocks on Bursa Malaysia. It has a market capitalisation of RM4.34 billion.

AAX, on the other hand, was down half a sen or 3.85% at 12.5 sen, bringing its market value to RM518.52 million. Some 20.03 million shares were traded.

A local aviation analyst, on condition of anonymity, said AAGB is now weighed down by uncertainty, and "it is now crucial to find out who exactly are the executives involved in the reported corruption".

"To put into a scenario, let's say if [AAGB group CEO Tan Sri] Tony Fernandes is the executive involved and if he is charged by the MACC, then he would have to resign from all positions held, and to sell off his stakes, which directly and indirectly total to about 32%," said the analyst.

If by chance Fernandes is charged by the MACC, it would pose a "very substantial impact" on the share price, the analyst said.

"Today's selloff could be only the first wave, the final wave would be when MACC announces the outcome and it happens to be Fernandes," the analyst added. On top of this, the coronavirus outbreak is seen to be likely weigh on the aviation counter's financial performance.

Thus, to avoid these downside risks, the analyst advised investors to sell the counter first and wait for the outcome from MACC, "then only make their investment decision".

Meanwhile, Kenanga IB Research said following allegations found in High Court documents related to Airbus' US$4 billion settlement with prosecutors in the US, the UK and France, that it made questionable payments linked to sponsorship of a sports team jointly owned by senior AirAsia executives to secure orders for aircraft, AirAsia responded on its website vigorously denying allegations of any wrongdoing.

"Besides corruption allegations, also weighing down AirAsia currently is the negative impact that the worsening Wuhan virus outbreak has on air travel," said the research house.

According to Bloomberg data, AAGB has 23 research houses covering the counter, with five buy calls and nine hold and sell ratings respectively, while AAX has nine research houses covering the stock with two hold calls and seven sell calls, and a consensus target price of 11 sen.

theedgemarkets.com on Saturday reported that the funds were used to sponsor an unnamed sports team jointly owned by two individuals identified as AirAsia Executive 1 and AirAsia Executive 2, but was legally unrelated to both airlines, according to UK court documents sighted by theedgemarkets.com.

On the same day, MACC chief commissioner Latheefa Koya has also confirmed that the commission is in touch with the UK authorities and is already investigating the matter

Read also:
Airbus allegedly bribed AirAsia, AirAsia X RM205m in sports team sponsorship to secure deals
MACC investigating Airbus bribe claims against two AirAsia executives
AirAsia denies bribery allegations