KUALA LUMPUR (March 27): MIDF Research has downgraded AirAsia Group Bhd (AAGB) to "sell" as it views the airline’s temporary flight suspension to take a larger hit on the group’s earnings for the second quarter.
The research house lowered its target price to 54 sen from 63 sen previously. The stock, currently trading unchanged at 73 sen, has lost 33% over the past month.
Yesterday, the group announced that it had temporarily suspended all international and domestic flights operated under AirAsia Malaysia from March 28 to April 21, 2020 in view of the extended movement control order till April 14 as the Covid-19 outbreak deepened locally and worldwide. Restricted cross-border travel in Malaysia and across the region has also lowered travel demand significantly.
Other airlines within AAGB such as AirAsia Philippines, AirAsia Thailand, AirAsia Indonesia and AirAsia India have also substantially suspended their flights or reduced flight frequencies.
“AirAsia Indonesia and AirAsia India used to be the darlings for AAGB. However, the increasing contagion of the Covid-19 pandemic outside China and wider travel bans by countries such as India will exert additional pressure on AAGB,” it said.
It added that as the Covid-19 pandemic is expected to stay serious throughout 1HFY20, this would impact travel demand domestically during the Hari Raya Aidilfitri holidays in May. This would then offset the impact of the stimulus packages for domestic tourism announced by the government previously, it said.
“With almost a month’s worth of flights scrapped off, we are now expecting 1HFY20 to be a disappointing half. Nonetheless, we believe that the Covid-19 will subside in 2HFY20, assuming that Malaysia’s infection rate will mirror China’s.
“Overall, we have pencilled in a substantially lower unit revenue per passenger and higher percentage decline in passengers carried. As a result, we are forecasting a net loss of RM514.8 million (previously earnings of RM145 million) while lowering our earnings estimates for FY21 and FY22 to RM227.1 million (from RM248.8 million) and RM507.3 million (from RM513 million), respectively,” it said.
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