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KUALA LUMPUR (Dec 30): MIDF Research downgraded AirAsia Group Bhd (AAGB) to “sell” at 90.5 sen, with an unchanged price target (TP) of 68 sen.
In today’s note, the research house said the recent rise in AAGB’s share price could have exceeded the valuation level, as dilution of investors’ shares seemed inevitable.
Commenting on AAGB’s divestment of its equity stake in AirAsia India (AAI), the research house said that, similar to AirAsia Japan’s closure, AAI’s announcement was long anticipated.
“AAI was never a profitable company for the group and a secondary market for AirAsia.
“We view this development positively, as the transaction will help improve AAGB’s dire cash situation. Management revealed that the cash proceeds will be used as working capital in 1Q21 (the first quarter of 2021), ”he said.
It should be noted that the group’s cash balances stood at RM618.2 million according to its results for the third quarter ended September 30, 2020 (3QFY20) published in November.
With a burn rate of approximately RM200 million per month for the cumulative first nine months of FY20 (9MFY20), any additional cash generated will be a boon to the group, MIDF said.
MIDF said it expects air travel demand to rebound significantly, but only partially from the pre-pandemic level in fiscal year 21.
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 more clearly measured, as governments and businesses are more adept at managing the virus’s traps.
The research house believes that punitive measures hampering air travel will gradually be reduced and possibly lifted, such as inter-country travel bubbles and universal screening for air travelers.
However, MIDF maintained its position that security is the main driver of a sustainable recovery.
The key considerations of the research house assumptions are the timing of vaccine approval and the successful administration of vaccines on a large scale.
MIDF held out hope for an aviation recovery, but remained sensible in assessing the feasibility of the recovery. While the new course outlined appeared conservative, it was considered precautionary and reasonable, as high stock prices for aviation players may be excessive given the 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 stay afloat in the current pandemic-laden operating environment.
As of 10:31 a.m. today, AAGB had fallen 1.66% or 1.5 sen to 89 sen, giving the shares a market capitalization of RM2.97 billion.
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