KUALA LUMPUR: Hong Leong Investment Bank Bhd (HLIB) is upbeat that Capital A's proposal to dispose its aviation operations to AirAsia X for RM6.8 billion will allow it to exit the Practice Note 17 (PN17) status.
As Bursa Malaysia has approved the company's PN17 restructuring proposal, HLIB said it is positive on the exercise mainly on the streamlining of the aviation segments to be consolidated under AirAsia X's new entity, AirAsia Group (AAG).
The research firm said the move this will strengthen the business model for long haul–short haul integration, with a new medium haul segment as the intermediary, by leveraging onto the new A321 fleets.
"AAG will be in a much stronger position to compete effectively against the established full service carriers such as Singapore Airlines (SIA), Emirates, and Japan Airlines (JAL), among others. "Shareholders of Capital A will benefit from it exiting PN17 status where its new focus will be on the growth of the aviation support business segments, leveraging onto AAG's growth and new shareholdings in AAG," the firm said in a research note today.
According to HLIB, Capital A is expected to ride on strong tailwinds from depreciation of US dollar, drop in global oil prices, and continued strong air travel demand.
The exercise is expected to be completed by the first quarter of financial year 2025 (1QFY25).
Post restructuring, the firm said Capital A will still own a 18.48 per cent stake in AAG, and its existing shareholders will also own direct shares in AAG via share distribution.
"Capital A's equity position is expected to return to a positive position of RM649.4 million (assuming no conversion of outstanding redeemable convertible unsecured Islamic debt securities [RCUIDs] and warrants) to RM2 billion (assuming full conversion of outstanding RCUIDs and warrants), effectively allowing it to exit the PN17 status. "In subsequent stage, Capital AA will acquire back GTR ground handling services from AAG," it added.
In its PN17 regularisation plan, Capital A proposed to dispose of its entire stakes in AirAsia Bhd and AirAsia Aviation Group Limited (AAAGL) to AirAsia X Bhd.
AirAsia operates passenger airline services in Malaysia while AAAGL does the same through its subsidiaries from Thailand, Indonesia, Philippines and Cambodia.
AirAsia X will hold its extraordinary general meeting (EGM) on Oct 16, 2024, while Capital A will hold its EGM on Oct 14 where the proposed disposal of its aviation business to sister company AirAsia X will be tabled for shareholders' approval.
HLIB maintained "buy" call on Capital A with a target price of RM1.68 while expecting further potential upside to the target price should the PN17 regularisation plan be successfully executed and investors start to appreciate the company's new structure.
Capital's A share price rose 3.3 per cent or 3 sen to 94 sen, valuing the company at RM4.04 billion.