KUALA LUMPUR (Oct. 6) : Maybank Investment Bank Bhd (Maybank IB) said today it is positive on the cessation of operations of AirAsia Japan Co Ltd (AAJ), which has never generated a yearly profit.
In a note today, Maybank IB analyst Yin Shao Yang said that while AAJ will have to incur one-off expenses to lay off staff and return its three leased aircraft to lessors, there could be an upside to the research house’s earnings estimates for AirAsia Group Bhd due to this development.
"Although AirAsia Group holds a 66.9% equity interest in AAJ, AAJ is [only] recognised as an associate as AirAsia Group holds only 33% of voting rights. AAJ never generated a yearly profit even before Covid-19 struck,” Yin said.
Yesterday, budget airline AirAsia Group said in a filing with Bursa Malaysia that it was notified of the decision taken by the board of directors of AAJ to cease its operations with immediate effect.
"We respect and have agreed to the decision made by AAJ as this would reduce the cash burn of AAJ and the company (AirAsia Group) amid the highly challenging operating conditions in Japan, which have been aggravated by the Covid-19 pandemic that has plagued the world since early this year,” AirAsia Group said.
Today, Yin said that for the first half ended June 30, 2020 (1HFY20), AAJ incurred a ¥2.3 billion net loss (about RM90 million).
According to him, Maybank IB forecasts that AAJ will incur a ¥6 billion net loss for FY20, followed by a ¥5.2 billion net loss for FY21.
He said Maybank IB expects AirAsia Group to recognise its share of loss from AAJ at about RM164 million and RM146 million respectively for FY20 and FY21.
"For the second time, AirAsia Group has exited a Japanese airline investment. Our FY20 'share of loss from AAJ' forecast accounts for only 7% of our FY20 core net loss forecast for AirAsia Group. Lest passenger revenue from its other operations come in below our expectations, we maintain our earnings estimates for AirAsia Group for now. Even so, we are positive on this development.
"We may turn even more positive should AirAsia Group cease the operations of 49%-owned AirAsia India (AAI) as well. For FY20/FY21, we forecast AirAsia Group to recognise its share of loss from AAI as a larger RM325 million/RM275 million,” Yin said.
He said Maybank IB had upgraded its call for AirAsia Group shares to "hold" from "sell" while maintaining its TP at 67 sen for the stock.
Meanwhile, at Hong Leong Investment Bank Bhd (HLIB), analyst Daniel Wong wrote in a note today that the cessation of operations of AAJ is a necessary measure for AirAsia Group to survive as the group contends with the impact of the Covid-19 pandemic.
"The impact of Covid-19 has been worse than our initial expectations. We reiterate our 'sell' recommendation for AirAsia Group with an unchanged TP of 46 sen based on 0.8 times P/B 2020 (price-to-book ratio for FY20), given the ongoing uncertainty of Covid-19 [as governments may extend lockdowns/movement controls], affecting air travel demand.
"We believe AirAsia Group is at risk of more capital raising exercises (cash calls) and potential industry restructuring in order to keep the group’s operations afloat during this critical period,” Wong said.
On Bursa today, AirAsia Group’s share price had risen half a sen or 0.78% to 65 sen as at the time of writing, which valued the company at about RM2.17 billion.
The stock saw 3.77 million shares traded.