Short Position

Differing values of the new AirAsia

AT the end of this month, shareholders of AirAsia Bhd will receive a 90-sen bumper dividend, the best ever paid out by the low-cost carrier since it started on an asset-light strategy two years ago.

Since 2017, AirAsia, which has prevailed despite the problems plaguing the industry, has paid out 88 sen per share to its shareholders. If the 90-sen dividend is included, the payout comes up to a total of RM1.78 sen per share.

The dividends are the result of AirAsia embarking on the sale and leaseback of its fleet of aircraft. Last year, 79 planes were sold to and leased back from BBAM Ltd Partnership, while another 25 planes are to come under a similar arrangement with Castlelake Ltd Partnership by the end of the third quarter.

After the planes are sold, AirAsia’s depreciation and interest charges should be lower, while the leasing charges should go up. The key towards the sale and leaseback model is to ensure that the leasing fees are less than the depreciation and interest charges incurred.

Another challenge for AirAsia is to mitigate the impact from the implementation of the MFRS 16 accounting standards, which came into effect this year. Analysts have flagged off AirAsia group of companies as among those to be impacted by MFRS 16.

AirAsia also has a long-standing battle with Malaysia Airports Holdings Bhd (MAHB) on certain fees in relation to the airline’s operations. In the latest development, the courts have ruled in favour of MAHB, which is a setback for AirAsia.

Amidst the various dynamics, it does not come as a surprise that analysts are divided on the fair value of AirAsia after the bumper dividend is paid out by end-July. Some have pegged it as high as RM3 based on an expected earnings per share of 29.9 sen.

The lower band is estimated at about RM1.80 on the assumption that AirAsia will not find it easy to navigate through the challenges and remain as profitable. A year from now, the new value of AirAsia will be more certain.

Tech stocks running ahead

ON Friday, shares in information technology (IT) provider Heitech Padu Bhd hit limit-up after they rose 30% or 31 sen. The company, whose losses widened to RM30mil in financial year 2018 from RM14mil the year before, not surprisingly received an unusual market activity (UMA) query, which it has yet to reply. However, some dealers reckon that investors piling into the stock are of the belief that the company is poised to win a new government contract. Note that reports had earlier put HeiTech Padu as one of the three listed tech companies which are the frontrunners for the multi-billion-ringgit Sistem Kawalan Imigresen Nasional (SKIN) replacement project, which will see a new integrated immigration system for Malaysia.

Besides this stock, investors have also been drawn to other tech stocks over the week. This includes MyEG Services Bhd, Excel Force Bhd, Green Packet Bhd and Dagang Nexchange Bhd. However, none of these companies have shown any spectacular earnings improvements recently.

While some are embarking on their own IT projects, the euphoria is surely backed by hopes of new government IT jobs being dished out. In the past, stocks enjoyed strong buying interest when such contracts were inked. However, under the new government, it is no longer going to be that easy. For one, it is clear that the government will only embark on IT projects that are firmly needed and in accordance to the tight budget the government is operating under.

Gone are the days when projects proposed by the private sector would be taken on with lofty payouts or profit-sharing deals. In fact, since the new government was formed, not a single large IT contract has been issued. This should tell you that the tech sector is no longer as lucrative as before.

Of plus points and negatives in housing

A HOUSE, anyone? Just do a bit of homework and legwork if you are on buying mode.

The residential market is broadly divided into primary sales, which is buying from developers, and the secondary market, which is buying from house owners.

If one is buying from developers, there are rebates and stamp duty waivers to be enjoyed because the home-ownership campaign has been extended until the end of the year.

If one prefers to buy from the secondary market, prices have been rather attractive and competitive of late. House owners have become more realistic of late.

There are some mixed views in regard to the residential segment, though. There are those who feel that prices have bottomed out and now is the time to buy.

There are others, however, who still see some challenging quarters ahead.

Property consultancy Nawawi Tie Leung said in its Kuala Lumpur Second-Quarter 2019 report that the rising overhang – completed units which remain unsold nine months after being launched – continues to be a concern. It is of the view that there is a need to evaluate this segment with a realistic approach.

It also anticipates the high-end residential property market to remain sluggish for the upcoming quarters.

Maybank Research in its property market report does not expect significant recovery in demand due to slower domestic economic growth. It is concerned about rising auction units.

Incidentally, the rising number of auction units and the growing overhang are signs of a weak and challenging environment.

According to the National Property Information Centre First-Quarter 2019 report, there were 47,486 units of completed unsold residential, serviced apartments and small offices-home offices at March 31, 2019, valued at RM30.85bil. This compares with 45,027 units at the end of 2018, valued at RM29.69bil.

So, think through it carefully.

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