Thursday 28 Mar 2024
By
main news image

KUALA LUMPUR (Dec 30): MIDF Research has downgraded AirAsia Group Bhd (AAGB) to “sell” at 90.5 sen, with an unchanged target price (TP) of 68 sen.

In note today, the research house said recent ascension of AAGB's share price might have overshot the valuation level as dilution of investors' shareholdings seemed inevitable.

Commenting on AAGB’s disposal of its equity interest in AirAsia India (AAI), the research house said similar to the closure of AirAsia Japan, the announcement on AAI was long anticipated.

“AAI was never a profitable venture to the group and a non-core market for AirAsia.

“We view this development positively as the transaction will help improve AAGB's dire cash position. Management disclosed that the cash proceeds will be utilised as working capital in 1Q21 (the first quarter of 2021),” it said.

To note, the group’s cash balances stood at RM618.2 million based on its results for the third quarter ended Sept 30, 2020 (3QFY20) released in November.

With a burn rate of about RM200 million per month during the cumulative first nine months of FY20 (9MFY20), any additional cash generated will be a boon to the group, MIDF said.

MIDF said it foresees that air travel demand will recover meaningfully, but only at a portion of the pre-pandemic level in FY21.

With the introduction of vaccines on the horizon, MIDF believes there is light at the end of the tunnel for aviation players.

The recovery narrative can be gauged with better clarity, with governments and businesses being more adept in managing pitfalls of the virus.

The research house believes punitive measures that hinder air travel will gradually be eased and potentially lifted, such as with travel bubbles between countries and universal screening for air travellers.

However, MIDF maintained its stance on safety being the paramount driver of a sustainable recovery.

Key considerations of the research house’s assumptions are the timing of vaccine approvals and successful administration of vaccines on a large scale.

MIDF remained hopeful of an aviation recovery but maintained its level headedness in assessing the viability of the recovery. While the new course charted seemed conservative, it was considered precautionary and reasonable as the lifted share prices of aviation players may be excessive given uncertainties surrounding the introduction and administration of vaccines.

The research house concluded that it remains an uphill battle for AAGB given that it is struggling financially to remain afloat in the current pandemic-laden operating environment.

At 10.31am today, AAGB had dipped 1.66% or 1.5 sen to 89 sen, giving the stock a market capitalisation of RM2.97 billion.

Edited BySurin Murugiah
      Print
      Text Size
      Share