Capital A to gain from high passenger demand

PETALING JAYA: Capital A Bhd’s system-wide revenue seat km may grow by 52% to 35 billion next year, as air travel recovery continues.

This will be a 19 billion rise from 23 billion expected this year.

Passenger demand is expected to continue to rise moving into 2023, judging from the encouraging load factors recorded at 159 international routes relaunched in the second quarter of 2022 (2Q22), said Kenanga Research.

“By end-November 2022, it would have resumed 86% and 60% of pre-pandemic domestic and international capacity respectively, by utilising 124 aircraft,” it added.

Hong Leong Investment Bank (HLIB) Research said air travel demand-recovery remains on track as more countries have reopened borders, with Hong Kong, Taiwan, Japan and South Korea relaxing travel requirements.

It said the group would also benefit from the declining jet fuel prices and softening of the US dollar.

The research house said Capital A’s management remains positive on the current yield environment given the rational pricing.

However, the group’s nine months financial year 2022 results were disappointing, with a net loss of RM2.4bil as the rebound in air travel fell short of expectations.

Kenanga Research said it widened its financial year 2022 (FY22) net loss to RM3bil from RM2.1bil.

It kept its FY23 assumption and earnings forecast.

The research house also maintained its target price (TP) of 60 sen a share while retaining its “market perform’’ outlook on the stock.

UOB Kay Hian Research raised its 2022 net loss forecast by 80% to RM2.7bil and reduced 2023 net profit estimate by 7% to factor in higher operating expenses and slower-than-expected revenue recovery.

It maintained its “hold’’ call with a lowered TP of 47 sen from 55 sen.

HLIB maintained its “buy’’ call with a TP of 88 sen on improving air-travel outlook.

Capital A is seeking an extension until July 2023 to submit a holistic PN17 regularisation plan. It also plans to divest its aviation group to AirAsia X by receiving shares and subsequently distributing them to its shareholders.

Kenanga Research liked Capital A for being a beneficiary of the recovery in air travel, its growing digital business, leveraging on its strong AirAsia brand and AirAsia’s existing client base.

It also has dynamic and visionary leadership that should help to steer it out of the current financial difficulty.

It cited risks that include the recovery in air travel stalling amid a global recession, sustained high jet fuel prices rendering air travel unaffordable.

Capital A’s inability to lift itself out of the PN17 status and persistent cash burn at its digital assets is also deemed risks for the company.