Advertisements

BUY now that everyone can fly

U/G to BUY from SELL; raise TP to MYR1.36 (+278%)

FY22E will still be challenging due to Thai AirAsia’s (TAA) woes and the spectre of a PN17 classification. Yet, we turn positive as the number of new COVID-19 cases fall and fares rise. A lot of value may also be unlocked by listing its digital assets. We now forecast a FY23E core net profit of MYR255m (core net loss of MYR439m previously). Migrating our valuation methodology to SOTP from 4.0x FY23E EV/EBITDA, we raise our TP to MYR1.36 from MYR0.36 and upgrade AAGB to BUY from SELL.

FY22E will still be challenging

AAGB may recognise a huge MYR1.1b in previously unrecognised losses from TAA in FY22E as it recapitalises and restructures. Yet, the actual cash outflow to AAGB is markedly smaller at MYR169m. Come 7 Jan 2022, we also opine that AAGB will almost certainly be classified as a PN17 listed issuer due to its huge negative shareholders’ equity position. That said, we gather that AAGB can greatly reduce its negative shareholders’ equity position by end-FY22E.

Advertisements

Underlying fundamentals improving though

New COVID-19 cases in AAGB’s major markets (i.e. Malaysia, Indonesia, Philippines and Thailand) are decelerating as COVID-19 vaccination rates accelerate. Mass travel has resumed in all 4 major markets. The Malaysian aviation industry is also consolidating and this is positive for Malaysia AirAsia (MAA) fares. MAA is especially important to AAGB as it historically contributed the great majority of AAGB’s group profits (70- 80%). AAGB may also unlock a lot of value by listing its digital assets.

Forecast AAGB to turn profitable in FY23E

For FY21E, our core net loss estimate is little changed (+3%). For FY22E, our core net loss estimate is twice than before largely due to AAGB recognising the huge MYR1.1b in previously unrecognised losses from TAA. More importantly, we forecast FY23E to swing to a core net profit of MYR255m from a core net loss of MYR439m before due to higher MAA fares. With a profitable FY23E, we hope AAGB will no longer be classified as a PN17 listed issuer by then (if it is classified as such on 7 Jan 2022).