Maintain BUY call and MYR1.31 SOP-based TP
As we had earlier flagged (link), AAGB has been classified as a PN17 listed issuer due to its negative shareholders’ equity position. That said, this does not mean that AAGB is insolvent. Moreover, there are at least 6 ways that AAGB can narrow its negative shareholders’ equity position substantially to hopefully lift its PN17 status. More importantly, AAGB’s fundamentals have improved with its airlines actively flying again. Estimates, BUY call and MYR1.31 SOP-based TP unchanged.
Balance sheet NOT cash flow led to PN17 status
AAGB was classified as a PN17 listed issuer due to its negative shareholders’ equity position (end-3Q21: -MYR3.2b) after suffering 7 quarters of heavy losses due to the COVID-19 pandemic. Compare and
contrast this to its cash flow, where it raised MYR2.6b (private placement: MYR336m, Danajamin backed loan: MYR500m, RCUIDS rights issue: MYR974m, investment in BigPay: USD100m, foreign loan: USD100m) which we believe is enough to carry it through FY22E.
PN17 status salvageable, in our view
We posit 6 ways that AAGB can substantially narrow its negative shareholders’ equity:- (i) waiver of deferred aircraft leases (MYR2.5b); (ii) listing of digital assets currently valued at USD1.2b or MYR5.2b; (iii)
reversal of impairment of right-of-use assets (MYR552m); (iv) issuance of RCUIDS (MYR974m) and warrants (MYR650m); (v) deconsolidate Indonesia AirAsia (IAA) and Philippines AirAsia (PAA) accounts; and (vi) sale of assets (e.g. maintenance, repairs and operations division).
More importantly, fundamentals have improved
Currently, Malaysia AirAsia (MAA) is flying c.33% of its aircraft, IAA and PAA are flying c.25%-33% of their aircraft and Thai AirAsia is flying c.50% of its aircraft, which we believe is respectable given that it was as recent as 3Q21 when South East Asia was ravaged by the Delta variant of COVID-19. Recent statistics reported by Malaysia Airports Holdings (MAHB MK, HOLD, CP: MYR6.04, TP: MYR6.10) also point to a better 4Q21 for MAA which historically contributes c.80% of group earnings.