AirAsia: Is the Worst Over?

Following AirAsia Group Bhd's larger-than-expected half-year loss reported on September 10, 2021, market analysts are now mixed on whether the low-cost carrier will see better days or continue to face bumpy quarters ahead. 

Hong Leong Investment Bank Research (HLIB Research) aviation analyst Daniel Wong noted that the governments of Asean countries have decided to relax their Covid-19 restrictions. "However, these pockets of relaxation for domestic travel still seem to be at a nascent stage, while international travel will only be gradually allowed towards the second half of 2022," he said. 

Meanwhile, CGS-CIMB Research analyst Raymond Yap considered AirAsia's digital businesses to be in the early stages of development and may consume significant amounts of cash resources due to the presence of established and well-funded competitors. Yap expects that the carrier's losses could remain significant in FY22, albeit narrower than in FY21. Furthermore, he pointed out that the potential for AirAsia to be classified as a Practice Note 17 (PN17) company by Bursa Malaysia may occur, which may result in institutional funds selling down the stock.

Meanwhile, after factoring in the larger-than-expected loss recorded for 1HFY21, MIDF Research has revised its FY21 loss estimate for AirAsia to RM2.06 billion. Despite the larger loss estimate for FY21, the research firm reckoned that the carrier should see better days ahead with its domestic airline operations expected to gradually improve from the fourth quarter ending Dec 31, 2021 (4QFY21) onwards following phased upliftment of travel restrictions for fully vaccinated individuals.

For Kenanga Research, it views that AirAsia’s long-term fortune rests on how successfully it can turn around and transform itself into a digital travel and lifestyle company.

Faced with a negative operating cash flow and negative equity, Kenanga Research pointed out that the carrier has to urgently resolve its liquidity and capital adequacy issues via cash calls.

AirAsia recorded a net loss of RM1.35 billion for 1HFY21, compared to a net loss of RM1.8 billion a year ago. Revenue fell 72.4% to RM686.82 million from RM2.49 billion in the same period. The carrier said it has continued with its cost containment measures, including the rightsizing of manpower and salary cuts for management, staff and directors, while managing actively its capacity to be in line with demand.

Source: https://www.airasia.com

Reference:

Is the worst over? Analyst mixed on AirAsia, Emir Zainul, theedgemarkets.com, September 10, 2021 (https://ceomorningbrief.theedgemalaysia.com)