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KUALA LUMPUR (Oct 6): Maybank Investment Bank Bhd (Maybank IB) said today that it is positive about the cessation of AirAsia Japan Co Ltd (AAJ), which has never generated an annual profit.
In a note today, Maybank IB analyst Yin Shao Yang said that while AAJ will have to incur one-time expenses to lay off staff and return its three leased jets to lessors, there could be an advantage in earnings estimates from the research house for AirAsia Group Bhd due to this development.
“Although AirAsia Group has a 66.9% stake in AAJ’s capital stock, AAJ [only] recognized as an associate, as AirAsia Group owns only 33% of the voting rights. AAJ never generated an annual profit even before Covid-19 hit, ”Yin said.
Yesterday, the low-cost airline AirAsia Group said in a presentation to Bursa Malaysia that it was notified of the decision made by the AAJ board of directors to cease operations with immediate effect.
“We respect and have accepted the decision made by AAJ, as this would reduce the burning of cash from AAJ and the company (AirAsia Group) amid highly challenging operating conditions in Japan, which have been exacerbated by the Covid pandemic- 19 that has plagued the world since the beginning of this year, ”said AirAsia Group.
Today, Yin said that during the first half ended June 30, 2020 (1SFY20), AAJ incurred a net loss of ¥ 2.3 billion (about RM90 million).
According to him, Maybank IB forecasts that AAJ will incur a net loss of ¥ 6 billion for FY20, followed by a net loss of ¥ 5.2 billion for FY21.
He said Maybank IB expects AirAsia Group to recognize its share of AAJ’s losses at approximately RM164 million and RM146 million respectively for fiscal year 20 and fiscal year 21.
“For the second time, AirAsia Group has exited a Japanese airline investment. Our ‘AAJ loss share’ forecast for fiscal 2020 represents only 7% of our fiscal 2020 core net loss forecast for AirAsia Group Lest the passenger revenue from its other operations Below our expectations, we maintain our earnings estimates for AirAsia Group for now, yet we are still positive on this development.
“We could become even more positive if AirAsia Group also ceases operations of AirAsia India (AAI), owned 49%. For fiscal year 20/21, we forecast that AirAsia Group will recognize its share of AAI losses as an amount greater than RM325 million / RM275 million, ”Yin said.
It said Maybank IB had upgraded its order for AirAsia Group shares to “hold” from “sell”, keeping its TP at 67 sen for the shares.
Meanwhile, at Hong Leong Investment Bank Bhd (HLIB), analyst Daniel Wong wrote in a note today that AAJ’s cessation of operations is a necessary measure for AirAsia Group to survive as the group grapples with the impact of the Covid- pandemic. 19.
“The impact of Covid-19 has been worse than our initial expectations. We reiterate our ‘sell’ recommendation for AirAsia Group with an unchanged TP of 46 sen based on 0.8 times P / B 2020 (price-to-book ratio for FY20) , given the current uncertainty of Covid-19 [as governments may extend lockdowns/movement controls], affecting the demand for air travel.
“We believe AirAsia Group is at risk of further capital raising exercises (cash calls) and possible industry restructuring to keep the group’s operations afloat during this critical period,” said Wong.
In Bursa today, AirAsia Group’s share price had risen half a sen or 0.78% to 65 sen at the time of this writing, which valued the company at around RM 2.17 billion.
The stock saw 3.77 million shares traded.
Read also:
Fernandes: AirAsia examines options for the Japanese company, including closure
AirAsia Japan said it plans to end operations
AirAsia Japan ceases operations
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