*This story has been updated at market close*
KUALA LUMPUR (Aug 3): AirAsia X Bhd (AAX) fell two sen or 28.57% in active trades on Monday, as analysts warned that the worst is yet to come for the carrier after it posted its biggest-ever quarterly loss.
At market close, the long-haul low-cost carrier's shares settled 1.5 sen or 21.43% lower at 5.5 sen, with 66.62 million shares done.
Foreign exchange losses and wrong hedges against higher crude oil prices pulled AAX into a massive net loss of RM549.7 million for its first quarter ended March 31, 2020.
CGS-CIMB Research kept its "reduce" call on the stock with a lower target price (TP) of RM0 (from 0.4 sen), after noting that AAX had already fallen into a net liability position as at March 31.
The research house said AAX is now in desperately attempting to grasp at all the straws it can find. It also believed the group had not been paying its lessors, maintenance providers and suppliers since the fourth quarter of 2019 (4Q19).
“AAX burned through RM140 million in cash during 1Q20 (first quarter ended March 31, 2020) and only has RM219 million left as at March 31. Assuming 1Q20 salary costs of RM105 million are reduced to RM70 million per quarter for the rest of the year, AAX only has enough cash to pay salaries until the end of 2020, not even considering its obligations to its suppliers,” according to the research house's note dated July 31.
It said AAX is currently negotiating with suppliers to reduce aircraft lease rates and to pay on a per-use basis, as well as to the early return of leased aircraft that is in excess of future requirements. It is also in talks to reduce airport charges, to revisit terms with business partners, and to restructure its fuel hedges with the remaining 30% of counterparties that have yet to agree to defer payments.
Going forward, CGS-CIMB said AAX’s survival will depend on it securing a new RM500 million bank loan, which it is negotiating with banks for. It will approach Danajamin Nasional Bhd to guarantee 80% of that loan once the banks agree, it added.
“Our view is that it will be unlikely for any bank to agree to provide liquidity unless there is shareholder support. But we have no evidence of either the individual shareholders of AAX, or AirAsia, willing to top up equity, and the Malaysian government has so far not offered state backing (apart from the offer of a Danajamin loan guarantee).
"In short, we believe that AAX is unlikely to secure the debt or equity funding it needs to see it through the Covid-19 pandemic,” the research house added.
“Our 'reduce' call is premised on the more probable outcome of AAX failing to secure the new RM500 million financing, and/or failing to secure new equity capital, which may make it the first airline casualty in Malaysia from the Covid-19 fallout,” it further added.
However, CGS-CIMB said its earnings forecasts are premised on AAX successfully securing the RM500 million loan and continuing to defer a significant portion of payments to suppliers in the next 12 to 24 months. While these may be unrealistic assumptions, it said these are necessary for the purposes of producing forecasts on a going concern basis.
The research house anticipates the group to register a wider net loss of RM2.53 billion in the financial year ended Dec 31, 2020 (FY20), compared to the RM489.48 million booked in FY19. It also expects AAX to post a net loss of RM1.05 billion for FY21 and RM725 million for FY22. This translates into a loss per share of 61 sen for FY20, 25 sen for FY21 and 17 sen for FY22.
As AAX is a long-haul airline and needs to wait a lot longer for international borders to reopen, CGS-CIMB's forecasts assumed that AAX’s available seat kilometre capacity in FY20 will only be 22% of its FY19 baseline, with FY21 at 40% of the baseline, and FY22 at 50% of the baseline.
Even if borders reopen, it said AAX might have to be a lot more selective on the routes it would want to fly.
Meanwhile, PublicInvest Research in a note today said AAX's 1QFY20 net loss was below house and consensus’ loss estimates.
The research house has widened its core loss estimates for AAX further by RM303.8 million to RM617.3 million for FY20 to FY22, compared to RM73 million to RM283 million previously, due to ongoing travel restrictions and longer recovery anticipated for travel demand.
PublicInvest Research said AAX is now in a severe bind, given its negative shareholders’ equity position — which has triggered caution by its external auditors on its ability to continue as a going concern — with the worst of its financial troubles likely to be seen.
“Based on our estimates, the group may require at least RM1.2 billion of equity funding to convert its current negative shareholders’ equity to a positive position, though we understand that the bulk of its negative equity were caused by unrealised forex loss and aircraft lease liabilities (under Malaysian Financial Reporting Standards 16 [MFRS 16]).
"The group could also opt to issue perpetual bonds, though it could be a challenge given its current financial plight and the likelihood of extremely exacting requirements by investors,” said the research house.
The research house is also concerned over AAX's near- to mid-term outlook, with its viability as a going concern an immediate priority. As such, it has maintained its “underperform” call on AAX with a lower TP of one sen.
According to Bloomberg, AAX has seven analysts covering the stock. Six have it on "sell", while one has it on "hold".
Year-to-date, AAX has declined 65% from 16 sen on Dec 31, 2019.