KUALA LUMPUR (March 10): CIMB IB Research is tipping low-cost airline AirAsia Bhd to distribute the entire gross proceeds from the stake sale in its leasing arm Asia Aviation Capital (AAC) as special dividends.

In its note March 9, the research firm said assuming AAC is valued at US$1.2 billion and AirAsia sells a 70% stake (the group is in the midst of selling 70%-80% stake in AAC), the latter will realise gross proceeds of US$840 million (or RM3.7 billion, based on the current exchange rate of RM4.45: US$1).

“This also works out to RM1.12 per share, based on 3,342 million shares. We expect the entire sum to be distributed as special dividends,” CIMB Research said.
 
AirAsia is noted to close bids for AAC’s stake sale on March 27, which will then be followed by a four to five week evaluation period, during which AirAsia will pick the buyer.
 
The sale of AAC could complete within this year.
 
CIMB Research reiterated its ‘add’ recommendation on the airline, with an unchanged target price of RM3.73.

Furthermore, post-sale, AAC will have a fleet of 70 planes — 34 leased and 36 owned. All 70 aircrafts will be leased to various AirAsia associates.
 
The future majority owner of AAC could potentially grow its fleet to a total size of 108 planes, as Malaysia AirAsia plans to sell and leaseback 38 A320ceos which it currently owns.
 
CIMB Research also estimates based on a portfolio of 70 planes, AAC will generate revenue of US$275 million and a net profit of US$63 million in FY17.
 
However, with a portfolio of 108 planes, this would raise AAC’s revenue to US$380 million, and a net profit to US$87 million.
 
“As the sector is trading at an average price-earnings (P/E) multiple of 8.5x in CY17F, AAC is then valued at US$740 million at that multiple,” CIMB Research said.
 
Meanwhile, AirAsia has orders for 400 planes currently: 300 A320neos and 100 A321neos. One-third of this orderbook (133 planes) will likely be allocated to the new owners of AAC.
 
“This orderbook is likely to be attractively priced, since AirAsia is Airbus’ largest customer, and will be highly valued by newcomers to the aircraft leasing business,” CIMB Research said.
 
“If AAC is valued at US$1.2 billion, the remaining US$460 million is attached to the orderbook of 133 planes, as well as the control premium and scarcity value, as an opportunity to buy an existing leasing business with established relationships with Airbus and GE (CFM engines), is rare,” it added.