Friday 29 Mar 2024
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KUALA LUMPUR (June 17): AirAsia Bhd, the largest low-cost airline company in Asia, said it does not consolidate the accounts of its associates’ operations in Thailand, Indonesia, the Philippines and India due to regulatory reasons.

It said the company is not allowed to own more than 49% equity interest in each of the entity, with the exception of the Philippines which is 40%.

"(But) for the best part of last year, the company has been trying to get the auditors and regulators to allow it to consolidate. This has just not been possible but as mentioned before to the investment community, the second quarter will see the company including a pro forma consolidation while the management continues to work with the regulators to allow the company to consolidate," it said in a four-page statement filed with Bursa Malaysia today to assure investors of its long-term prospects.

Shares of AirAsia have plunged to five-year lows since last Friday (June 12) after Hong Kong-based research firm GMT Research issued a press statement on its website, announcing that it had written a report on AirAsia questioning its accounting and cash flow issues. According to an analyst who had seen the report, GMT research's main concern was the method AirAsia had applied to account for losses from its associates.

AirAsia said strong corrective actions are being implemented in its loss-making associate, Indonesia AirAsia (IAA) to drive its return to profitability in the third- and fourth-quarter of 2015, with a target to breakeven by year-end.

"IAA is cash positive and we will further improve cash flow on the back of higher cash from operations. Key turnaround plans include a reduction of fleet size by four aircraft, reduction of cost and greater dependance on international traffic," it added.


As for Philippines’ AirAsia (PAA), profitability is targeted for 4Q15.

"There will be no new aircraft and large capacity being added to the Philippines this year but the management will ramp up 2016 onwards to build up international capacity with two potential new hubs," said AirAsia.

Key turnaround plans include introduction of one to two new hubs, focusing on international and leisure destinations, additional three aircraft per year in the next three years, and further cost reduction initiatives, it added.

AirAsia also said the target to an initial public offering (IPO) of both associates will be in 2017, with valuation of some US$700 million for IAA and US$600 million for PAA.

"The company targets to float 20% of the shares raising minimum of US$150 million. At IPO, all shareholders will be diluted proportionately. Part of the IPO proceeds will be used to pay down AirAsia’s interco borrowings," it noted.

Currently, AirAsia’s net gearing level stands at 2.47 times, but it aims to bring it down to around 2 times by end of 2015 as it cut aircraft acquisition from an average of 25 aircraft per year to an average of four per year over the next three years.

"The management believes that 2015 will be a very good year on the back of a better operating environment with lower fuel price and a much more rational market, and the company has shown good progress through its 1QFY15 performance," it said.

"The management wants to also highlight the strength of AirAsia’s balance sheet as the company owns more than 120 aircraft. There is huge demand for sale and leaseback on the company’s aircraft and the management is looking to do that for up to 20 aircraft this year, with no increase in operating leverage.

AirAsia (fundamental: 0.2; valuation: 1.4) shares continued to fall today, to close down 6.71% at RM1.53 with a market capitalisation of RM4.26 million.

(Note: The Edge Research's fundamental score reflects a company’s profitability and balance sheet strength, calculated based on historical numbers. The valuation score determines if a stock is attractively valued or not, also based on historical numbers. A score of 3 suggests strong fundamentals and attractive valuations.)
 

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