AirAsia X Bhd
(Feb 4, 63 sen)
Maintain fully valued with higher target price (TP) of 56 sen: AirAsia X (AAX) has proposed a rights issue with free warrants to raise RM395 million, approximately 25% of the current market capitalisation, which will be used for debt repayments (30%) and working capital purposes (68%).

Annual interest cost savings from the debt repayment are estimated to be RM8 million. The issue price and entitlement basis have yet to be fixed.

Regulatory approvals aside, the exercise requires shareholders’ approval via an extraordinary general meeting (EGM), and is expected to be completed in the second quarter of calendar year 2015.

Azran Osman-Rani resigned as chief executive officer (CEO) of AAX effective last Friday. Datuk Kamarudin Meranun has stepped up as the new group CEO, and will oversee Malaysia AAX, Thai AAX and Indonesia AAX. Benyamin has been appointed CEO of Malaysia AAX.

We revise our financial year 2014 (FY14) earnings by 1%, but cut our FY15 and FY16 forecasts to net loss, as we believe AAX will pass the bulk of the fuel cost savings to passengers.

The recent announcement to completely remove the fuel surcharge suggests an unforgiving competitive environment. A weak ringgit will also be a drag on earnings.

We derive the TP on a pre-rights basis, which ignores the entitlement basis and rights issue price. This is based on 1.7 times FY15 price-to-book value, the average valuation of its low-cost carrier peers. — Alliance DBS Research, Feb 4

This article first appeared in The Edge Financial Daily, on February 5, 2015.