Capital A’s focus on Asean market to bear fruit

PETALING JAYA: Capital A Bhd’s latest move to sell off its remaining AirAsia India (AAI) stake in India is seen as a positive development given the tough and competitive operating environment in the country, says Hong Leong Investment Bank (HLIB) Research.

The research house said Capital A is better off focusing and strengthening its position in the Asean market, of which it has operations in multiple countries.

“With the reopening of borders, the group will need to leverage on regional air travel demand to further grow its earnings amid the easing of jet fuel prices,” HLIB Research said in its latest report.

While it was painful for Capital A to completely exit from India market, the research house believes that this is a positive short-term measure for Capital A to focus on its core Asean market for now.

Capital A will receive RM89.3mil which will help strengthen its cash coffers and address its ongoing liquidity concerns as the group continues to recover from the Covid-19 pandemic, HLIB Research noted.

Almost all countries, except for China, have opened up their borders as well as relaxed their travel restrictions.

Over the longer term, when Capital A’s balance sheet has strengthened, the research house expects Capital A will be able to explore opportunities in terms of expanding the group’s network and market reach.

Capital A announced the disposal of its remaining 16.33% stake in AAI recently for a gross proceed of 1.6 billion Indian rupees (US$18.8mil or RM89.3mil)) to Air India Ltd, an affiliate of Tata Sons Pte Ltd, the holding company of the Tata Group.

Capital A will not be recognising gain or loss on the disposal as the disposal price is matched to its fair value.

According to HLIB Research, post-disposal, Capital A will not hold any equity interest in AAI.

The Brand License and Technical Services Agreement between AirAsia Bhd, a subsidiary of Capital A and AAI will be terminated after 12 months from the date of termination of the shareholders agreement between the parties or at an earlier date.

The research house maintained a “buy’’ call on the stock with an unchanged target price of 88 sen a share.

Capital A has also engaged several agencies to help regularise its financial conditions to enable the group to come out of the Bursa Malaysia’s Practice Note 17 (PN17) scheme.

Formerly known as AirAsia Group Bhd, Capital A was classified as a PN17 company in January 2022 after Bursa Malaysia dismissed its appeal for an extension beyond Jan 7.

Capital A has about less than two months to submit its regularistion plan to the authorities for approval.

For the first six months of 2022, Capital A reported net losses of RM1.84bil from RM1.35bil a year earlier.

However, its revenue doubled for the period ending June 30, 2022 to RM2.28bil from RM710mil.

Much of this rise was led by growing demand for air travel with the relaxation on travel restrictions.