PETALING JAYA: MIDF Research sees the recent disposal of AirAsia Group Bhd’s entire stake in Merah Aviation Asset Holding Ltd for RM3.22 billion as positive for the group, citing it is in line with its digitalisation efforts.
To recap, AirAsia’s indirectly-owned unit Asia Aviation Capital Ltd had entered into agreements with Castlelake LP’s indirectly controlled entity to sell Merah Aviation Asset, which will comprise 25 existing aircraft to be leased back to AirAsia.
MIDF said in a note today that the disposal would result in annual savings of expenses related to financing and depreciation worth RM90.1 million and RM196.8 million respectively, partially offsetting rental expenses of RM348 million.
The research house said the group’s strong net cash pile will bode well for its route network expansion without the financial burden of owning aircraft, and the strong net cash position will also assist its aspirations of being more digitally focused and aid any investments needed.
“Taking into account of the repayment of existing debt related to the 25 aircraft and the expenses incurred for the proposed disposal, the remaining proceeds to AirAsia from the proposed disposal will be around RM1.3 billion.
“As such, AirAsia’s net cash position will increase from RM1.23 billion (as of Sept 30) to approximately RM2.43 billion,” it added.
In the long run, MIDF said the disposal will strengthen the ties between AirAsia and Castlelake, paving ways for more opportunities in the field of aircraft leasing.
MIDF maintained its “buy” call for AirAsia with an unchanged target price of RM3.48 per share, pegging its financial year 2019 (FY19) earnings per share to price-earnings ratio of 10 times.
“Overall, we believe the prospect of AirAsia remains sanguine predicated on stable demand growth with conservative average ASK (available seat kilometers) expansion of 13.3% so far in FY18; and resilient load factor despite volatile fuel price,” MIDF added.