TA Securities optimistic about Capital A's aviation business disposal for PN17 uplift

KUALA LUMPUR: TA Securities is positive on Capital A Bhd’s move to dispose of its aviation business to AirAsia X Bhd (AAX) as it is necessary to uplift Capital A from its Practice Note 17 (PN17) status.

“From the risk perspective, we are positive as we deem the disposals are necessary to uplift Capital A from its PN17 status or risk triggering a trading suspension.

“Moreover, the shareholders of Capital A are expected to continue to hold shares in the aviation segment via AAX,” it said in a report.

ALSO READ: AirAsia X to acquire Capital A's aviation business

TA highlighted Capital A's anticipated gains from diluting interest in AirAsia Bhd and AirAsia Aviation Group Limited (AAAGL). The proposed disposals, leading to the deconsolidation of AirAsia and AAAGL from Capital A, are expected to enhance the group's shareholders' equity and regularise its financial conditions.

AAX has entered into a non-binding letter of acceptance with Capital A for the proposed acquisitions of its aviation businesses, namely AirAsia and AAAGL.

The carrier said the move positioned AAX to become the overarching regional aviation provider for all short and medium-haul routes under the AirAsia brand name.

ALSO READ: Capital A to sell airline business to AirAsia X

The decision to combine the airline businesses through these acquisitions leverages AAX's robust recovery trajectory after its upliftment from the PN17 status in November 2023.

“We maintain Capital A’s target price at RM0.85/share, which is based on a PE multiple of 10x CY24 earnings.

“We advise investors to stay out of Capital A’s restructuring exercise until having more clarity on the AAX share entitlement, which would depend on the price fixing of new AAX consideration shares and the final disposal considerations,” TA said.