MORE TURBULENCE FOR AVIATION SECTOR
MIDF Research keeps ‘sell’ call on AirAsia with 37 sen target price
THE recovery of the aviation sector will likely take longer than expected due to uncertainty over border controls, travel restrictions and quarantine measures, consumer and government confidence, and financial viability.
MIDF Research analyst Ummar Fitri said financial muscles were needed for airlines, particularly AirAsia Group Bhd, to ride out the tough period.
He said AirAsia was still short of its target of raising between RM2 billion and RM2.5 billion of fresh capital.
“So far, only the first and second tranches of its equity placement are completed, worth around RM336 million,” he said in a research note yesterday.
He said the group had also secured a RM300 million loan from Sabah Development Bank, although it was earmarked for specific projects in the state.
“AirAsia’s core business remains in a dire state as passenger traffics are minimal.”
The research firm said new funds specifically for AirAsia’s aviation business were needed for it to stay afloat.
“We maintain our stance that safety is the paramount driver for a sustainable recovery. Without it, demand for air travel will remain low, at least not in the level that is sufficient to save the industry from further losses,” said Ummar.
Key considerations to its assumption include the timing as well as successful and impactful administration of Covid-19 vaccines on a large scale.
“We believe these two circumstances will lead to a sustainable and meaningful recovery of air travel demand.
“We are hopeful of the aviation sector recovery but maintain level-headedness in assessing the viability of the recovery,” he added.
MIDF Research has maintained its “sell” call on AirAsia and kept the target price at 37 sen per share.
“We opine that although recovery is expected to gradually take place this year, it remains an uphill battle for AirAsia given that it is struggling to remain financially afloat in the pandemic-laden operating environment,” said MIDF Research.