PETALING JAYA: Analysts have maintained their "buy" call on aviation company Capital A Bhd
on the premise that it will turn around.
Hong Leong Investment Bank (HLIB), in its report, said it was maintaining its "buy" call on it.
"Despite the short-term difficulties, we believe Capital A will turn around, leveraging on the strong air-travel demand in the region. We expect further potential upside to our target price should the PN17 regularisation plan be successfully executed."
It has a target price of RM1.68 on the stock. At last look, the stock was at 81.5 sen apiece.
HLIB is maintaining its buy call on Capital A with an unchanged target price of RM1.68, based on the implied valuation of RM6.8bil for the aviation business and assuming RM2.15bil for non-aviation segments.
It noted that Capital A returned to core profit after taxation and minority interests or PATMI of RM20.9mil in fourth quarter ended Dec 31, 2024 (4QFY24).
However, the results were below HLIB's forecast and the disappointment was mainly due to a lower-than-expected fleet utilisation ratio as the group is still affected by inactive aircraft, resulting in a higher cost structure.
HLIB said air travel demand remains strong, and management is focusing on the China and India markets.
The group is working hard to reactivate the remaining 17 fleet by mid-2025 and also take delivery of new fleet. Average fare is expected to stay healthy at the RM240 level, it said.
The segment is also expected to benefit from the ringgit's appreciation and lower jet fuel cost in 2025, while restructuring its debt to lower finance costs will also help, it added.
HLIB also said the disposal of the aviation business to AirAsia X Bhd is pending court approval and the transaction is expected to be completed in 2QFY25, which allows exit from the PN17 status post-disposal exercise, alongside shareholder and court approval.
Public Investment Research said that although the aviation company's results fell short of both its and consensus full-year estimates, it was keeping its earnings forecasts, anticipating stronger prospects ahead.
This is supported by a stronger ringgit, lower jet fuel prices and robust air travel demand.
"With the group's restructuring plan providing a clear roadmap to operational recovery, we believe Capital A is well-positioned to capitalise on the growing regional travel demand.
"As such, we maintain our outperform call on Capital A with an unchanged target price of RM1.57," it said.
