KUALA LUMPUR: AirAsia Group Bhd’s recent disposal of its entire stake in Merah Aviation Holding Ltd (MAHL) will result in annual savings of expenses related to financing and depreciation worth RM90.1 million and RM196.8 million respectively, said MIDF Research.
Following the disposal, AirAsia’s net cash position will increase from RM1.23 billion (as of September 30, 2018) to about RM2.43 billion.
MIDF Research said the strong net cash position would also assist AirAsia’s aspirations of being more digitally focused and aid any investments needed.
In the long run, it said the proposed disposal would strengthen the ties between AirAsia and Castlelake LP, paving ways for more opportunities in the field of aircraft leasing.
AirAsia’s indirect wholly-owned subsidiary, Asia Aviation Capital Limited (AACL), entered into an agreement to dispose its 100 per cent stake in MAHL to AS Air Lease Holdings 5T DAC (AALH) for RM3.22 billion.
AALH is an indirectly controlled entity of US investment firm, Castlelake.
AACL also entered into a sale and leaseback agreement with AALH for four new Airbus A320 NEOs which are expected to be delivered in 2019.
MIDF Research said AirAsia was trailing at a price earnings ratio (PER) of below five times, while its Asian peers are trading at a PER above 10 times, which it opined was unwarranted given the group’s position as the leading Asean low cost carrier.
Besides that, it said while a risk lies in AirAsia having to adhere to the passenger service charge which may push average fares higher to sustain margins, AirAsia’s dynamic pricing mechanism could mitigate this effect.
“We continue to like AirAsia as the company continues enhance its cost structure, along with its efforts of rationalising revenue and cost via digitalisation efforts,” it said.
MIDF Research maintained a “buy” call on AirAsia with an unchanged target price of RM3.48.