Capital A said the disposal of its airline business to AAX was aimed at enhancing operational efficiency and better cater to the overall market demands.
PETALING JAYA: Capital A Bhd
’s move to dispose of its airline business to sister company AirAsia X Bhd (AAX) is seen as a positive development to help the former uplift itself from its Practice Note 17 status, or risk triggering a trading suspension.
However, TA Research is not turning positive on Capital A yet as the market awaits more details on the deal.
The research house, which maintained its “sell” call on the company with a target price of 85 sen, advised investors to “stay out” of Capital A’s restructuring exercise until they have clarity on the AAX share entitlement, which would depend on the price fixing of new AAX consideration shares and the final disposal considerations.
TA Research said Capital A’s shareholders are expected to continue to hold shares in the aviation segment via AAX.
According to the company announcement, Capital A is expected to record a gain on dilution of interest in AirAsia Bhd (AAB) and AirAsia Aviation Group Ltd (AAAGL), as well as deconsolidation of AAB and AAAGL from Capital A as a result of the proposed disposals.
The market did not perceive the exercise in a positive light, judging from the 2.96% decline in Capital A’s share price to 82 sen, while AAX fell 1.02% to RM1.94 at the close of the first trading session.
Capital A announced yesterday that the disposal of its airline business to AAX was aimed at enhancing operational efficiency and better cater to the overall market demands.
Chief executive officer Tan Sri Tony Fernandes said the move was part of a comprehensive consolidation plan to transfer all short-haul businesses in Malaysia, Thailand, Indonesia, the Philippines and Cambodia to its mid-haul budget carrier AAX.
The disposal consideration is expected to be satisfied by a combination of cash and issuance of new shares of AAX. A detailed announcement on the proposed disposal will be made upon the signing of a definitive agreement.
Meanwhile, Kenanga Research, which has a “market perform” call on Capital A, has maintained its earnings forecast with a target price of 84 sen for the group.
“Essentially, the exercise is expected to result in greater clarity of investment between Capital A, being the aviation services and digital businesses provider; and AAX, a pure aviation business consolidating both long and short-haul routes under the AirAsia brand name.
This would result in the development of a more focused shareholder base, which is also expected to facilitate a business-centric valuation of the separate entities and potentially unlock value to shareholders.
“Once the sale is completed, Capital A will focus on four businesses, namely, Teleport, Santan, BigPay and Asia Digital Engineering Sdn Bhd,” the research house said.
In November 2023, Capital A proposed the listing of a unit, which is the licensee of the AirAsia brand, via a special-purpose acquisition company on Nasdaq at US$1bil (RM4.77bil) valuation.
Kenanga Research said based on its financial year 2024 net profit of RM250mil for Capital A’s airlines business and applying low-cost carriers’ peer one-year forward price earnings ratio of between seven times and 14 times, the indicative valuation works out to between RM1.8bil and RM3.5bil.
Based on an indicative valuation of RM3.5bil, its sum-of-parts target price is expected to be raised by 28% from 84 sen per share to RM1.08 per share. The research house said there could be potential earnings leakages or losses to the group from revenue and profit contribution following the sale of its airlines business to AAX.
