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Maintain SELL and MYR0.36 TP

Results were within our expectation but disappointed consensus. Cash management remains delicate; in our view, AAGB ought to remain liquid. 2H21 outlook may not be a lot better than 1H21, in our view. As we maintain our valuation methodology at 4.0x FY23E EV/EBITDA (-1SD to 5- year pre-COVID-19 mean EV/EBITDA), our MYR0.36 TP is unchanged. Main risk to our view is AAGB monetizing its loss generating digital business.

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About flattish sequential core losses

2Q21 core net loss of MYR664m brought 1H21 core net loss to MYR1.31b (-22% YoY) which was within our expectations at 49% of our FY estimate, but below consensus at 64%. No dividends were declared, as expected.
As at end-2Q21, AAGB’s gross cash balance was lower QoQ at MYR235.6m (end-1Q21: MYR447.7m) and monthly cash burn was higher QoQ at MYR71m (1Q21: MYR29m) due to higher lease repayments and less debt
and equity financing QoQ.

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Cash walking a tight rope but ought to pull through

Though the aforementioned cash burn rate suggests that AAGB’s gross cash balance may soon diminish, it recently received USD56.8m (c.MYR235m) from the sale of 3.3m Fly Leasing (FLY US, Not Listed) shares. AAGB is also confident that it will raise MYR1b in debt under the Danajamin Prihatin Guarantee Scheme and another MYR1b in equity from
its renounceable rights issue by year end. Thus, AAGB should have sufficient short term liquidity, in our view.

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2H21 outlook likely to be patchy

In terms of its aviation operations, AAGB expects 3Q21 to be similar to 2Q21. Most of its airlines in ASEAN (i.e. Malaysia, Indonesia, Philippines, Thailand) are ‘hibernated’ (i.e. Indonesia since 6 Jul 2021 and Thailand
from 12 Jul 2021 until 3 Sep 2021) or operating at low utilisation rates due to a surge in COVID-19 cases. Hopefully with increased vaccination rates across ASEAN, their utilisation rates will improve towards 4Q21. We maintain our estimates for now.