PETALING JAYA: With its aviation business sold earlier this year, Capital A Bhd
’s new business structure has limited exposure to rising jet fuel prices, analysts say.
The company is now mainly involved in five businesses: aviation maintenance, repair and overhaul services (Asia Digital Engineering or ADE), logistics (Teleport), online travel agent platform (AirAsia MOVE), in-flight catering services (Santan), and AirAsia brand management (AirAsia NEXT).
Hong Leong Investment Bank Research (HLIB Research) said Teleport is largely tied to passenger airlines, where a significant portion of higher fuel costs is passed on to air travellers, resulting in contained impact.
“Nevertheless, Teleport has implemented fuel surcharge to customers, while demand for air cargo and eCommerce remains resilient,” the research house said in a note.
Teleport has both direct exposure to jet fuel costs through its three owned freighter operations and indirect exposure via higher freight rates.
“We gather that the demand for air cargo and eCommerce is still holding up since the Iran war erupted.
“Teleport has a strong cost advantage over conventional logistics service providers as it leverages the belly space of passenger flights for AirAsia X Bhd (AAX) and third party airlines, where the majority of the flight cost (including jet fuel) is charged to passengers.”
Following the Iran war, year-to-date Brent crude oil price has surged to approximately US$110 per barrel from US$65.
Jet fuel price has risen even more significantly, currently at US$220 per barrel from US$90, largely due to elevated crack margins to US$100 per barrel from US$25.
This has been exacerbated by tight inventories, refining constraints, and export restrictions imposed by several countries to secure domestic supply.
In January this year, Capital A completed its aviation business disposal (AirAsia Bhd and AirAsia Aviation Group Ltd) to AAX, marking the final chapter of its six-year restructuring journey.
The transaction was settled via the allotment and issuance of 2.31 billion new AAX shares to Capital A and its entitled shareholders by way of a dividend-in-specie, together with AAX’s assumption of RM3.8bil previously owed by Capital A to AirAsia Bhd. Concurrently, AAX also allotted and issued 606.1 million placement shares to investors.
An analyst told StarBiz that Capital A today has a “very different” earnings profile from its pre-restructuring days.
“The direct exposure from oil prices is far more limited, while its remaining platforms retain some ability to pass on costs or ride through volatility.
“That leaves room for sentiment to normalise once investors refocus on execution, monetisation and the path out of the Practice Note 17 (PN17) status,” the analyst said.
HLIB Research also echoes a similar stance that the uplifting of the PN17 status by the second half of 2026 is expected to enhance investor confidence and spur a valuation re-rating.
“Looking beyond the Iran war, ADE, Teleport, and AirAsia MOVE are well positioned to deliver strong growth over the next few years,” it added.
Despite the ongoing Iran war and rising air ticket prices, HLIB Research said overall air travel demand has remained resilient for ADE, particularly for regional routes.
“AAX continues to maintain its planned flight capacity and maintenance schedules, indicating uninterrupted business flow to ADE, which is currently almost entirely driven by AAX.
“As such, we do not expect the Iran war to have a material impact on ADE’s business volume or cost structure, at least in the near term.”
On AirAsia MOVE, HLIB Research believes a persisting Iran war could temporarily dampen leisure travel demand due to the surge in fuel prices and fuel supply constraints within the region.
That said, going by the longer term outlook, AirAsia MOVE aims to capture 22% of the South-East Asia online travel market by 2035, up from its current 4%
The research house has maintained its “buy” call on Capital A, with a lower target price of 93 sen from RM1.05 earlier.
HLIB Research said the high price-to-earnings valuation of Capital A is justified by the expected strong and sustainable earnings growth, driven by the group’s expansion plans and leverage on AAX’s long term growth, alongside elevated regional peer valuations.
“The 19.5% AAX stake (655.2 million shares) will be distributed via dividend-in-specie over time, subject to retained earnings,” it added.
