(Updated)

Analysts maintain 'sell' on AirAsia as recovery seen an uphill battle

(Photo by Mohd Suhaimi Mohamed Yusuf/The Edge)

(Photo by Mohd Suhaimi Mohamed Yusuf/The Edge)

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KUALA LUMPUR (March 30): Ongoing travel restrictions and uncertainty over the Covid-19 situation are key concerns for analysts tracking low-cost carrier AirAsia Group Bhd when gauging the likelihood of the airline’s recovery this year.

According to MIDF Research, although the recovery of the aviation sector and air travel is expected to gradually take place in 2021, it remains an uphill battle for AirAsia given that it is struggling financially to remain afloat in the current pandemic-laden operating environment.

MIDF, Hong Leong Investment Bank (HLIB) and AmInvestment Bank all maintained their "sell" rating of the stock, while Kenanga Research maintained its "underpeform" call.

The carrier reported a net loss of RM5.1 billion or RM1.52 per share for the financial year ended Dec 31, 2020 (FY20), widening from a net loss of RM315.81 million for the previous year. This was also 66% wider than the consensus estimate of 92 sen per share.

The full-year results reflected a bigger-than-expected net loss of RM2.44 billion for the fourth quarter ended Dec 31, 2020 (4QFY20) after AirAsia booked a series of impairments.

“FY20 was devastating for AirAsia as the group was forced to operate at minimal capacity due to the movement control order (MCO) that severely limited domestic and international travel, which still continues currently,” said MIDF.

Interestingly, while MIDF lowered its target price (TP) for AirAsia to 21 sen from 37 sen previously, the other research houses increased theirs.

HLIB now has a higher TP of 90 sen from 37 previously after it increased its price-earnings (P/E) to five times AirAsia’s FY22 earnings per share (EPS), while Kenanga raised its TP to 70 sen from 38 sen, also on higher EPS estimates.

AmInvestment, meanwhile, tweaked its fair value (FV) upward slightly to 63 sen from 62 sen previously to adjust for a 3% premium to reflect a four-star environmental, social, and governance (ESG) rating for AirAsia as appraised by the bank, it said.

“We expect AirAsia to face a tough operating environment over the next two to three quarters, derailed by still widespread travel disruptions due to Covid-19. However, the availability of vaccines has renewed optimism for air travel returning to normal sooner than expected,” Kenanga wrote in a note today.

AirAsia’s negative equity position is also a point of concern for analysts. For FY20, AirAsia recorded a negative book value about RM3.6 billion.

The airline completed two tranches of private placement during the first quarter of the year, raising RM336 million. This was part of its plans to raise RM2 billion to RM2.5 billion in a combination of debt and equity funding to ensure sufficient liquidity for the group, it said.

“We believe it is highly critical for AirAsia to shore up its liquidity quickly given its cash burn rate [which] we estimate at about RM350 million a month,” said AmInvestment in a note.

It said depending on how soon Malaysia and the world at large emerge from the Covid-19 pandemic, AirAsia may need to raise more fresh capital, including potentially a debt-to-equity swap for creditors to ensure its long-term survival.

AirAsia shares, which fell as much as seven sen or 6.19% to RM1.06 today, settled at RM1.07 on market close — still down six sen or 5.31% — for a market capitalisation of RM4.08 billion. It saw 69.85 million shares traded.

Read also:
AirAsia books wider-than-expected 4Q net loss of RM2.4b
AirAsia Group down after reporting FY20 net loss at RM5.1b

Surin Murugiah