High possibility of AirAsia announcing another special dividend — Analysts
KUCHING: There is a high possibility of AirAsia Bhd (AirAsia) announcing another special dividend following the monetising of its assets within financial year 2017 (FY17), the research arm of Hong Leong Investment Bank Bhd (HLIB Research) says.
According to HLIB Research, the total potential proceeds from the disposals of Asia Aviation Capital (AAC) or about RM4.4 billion to RM5.3 billion, Expedia at RM378.4 million and AACOE at RM250 million.
This sums up to between RM5 billion to RM5.9 billion, translating into RM1.49 to RM1.75 per share.
“Tender submission for AAC has closed by end March and is currently under evaluation stage,” the research arm said.
HLIB Research expected AirAsia to maintain 20 to 30 per cent share in AAC.
It noted that management has indicated the proceeds to be used for special dividend distribution and debt repayments (further improve gearing on top of deconsolidation of AAC).
HLIB Research highlighted that in the first quarter of 2017 (1Q17), there was a slight 0.3 per cent year on year (y-o-y) drop in KLIA2 pax traffic due to Malindo moving its operation into KLIA-MTB since mid-March 2016.
“Excluding Malindo, the normalised growth of KLIA2 was 9.2 per cent y-o-y, reflecting continued healthy growth of AirAsia operation in 1Q17,” it said.
HLIB Research further noted that the higher growth of 10.5 per cent y-o-y pax traffic versus 3.5 per cent y-o-y aircraft traffic in Malaysia Airports in 1Q17, indicated improvement in overall pax load factor.
Hence, the research arm expected AirAsia to have maintained high load factor of above 85 per cent (AirAsia Malaysia reported 85 to 89 per cent load factor in 1Q to 4Q16) and achieved higher operational efficiency.
HLIB Research opined that concerns on higher jet fuel prices and weak ringgit are over-played, given AirAsia has hedged 75 per cent of fuel requirement at US$60 per barrel (bbl) and 65 per cent of US dollar borrowings.
“Moreover, the ringgit has shown stabilisation with bias of strengthening,” it said.
“Management has guided that AirAsia earnings is sustainable due to improving load factor and operational efficiency as well as higher revenue.”
HLIB Research pointed out that despite the concerns on the weakened ringgit and higher jet fuel price, AirAsia earnings is sustainable from the strong capacity expansion, high load factors and low jet fuel costs.
It said that asset monetisation and joint venture (JV)/Associates initial public offering ( IPO) exercises in 2017 will further enhance AirAsia’s valuation.
HLIB Research reiterated its ‘ buy’ recommendation with a higher target price of RM3.82 per share.