AirAsia losses expected to be wider for FY20

It is likely for low cost carrier AirAsia Bhd to report a larger core net loss of RM2.7 billion from a core net loss of RM1.9 billion forecasted earlier for the full financial year 2020 after it posted lower than expected financial numbers in the second quarter (Q2). Photographer: Goh Seng Chong /Bloomberg *** Local caption***

KUALA LUMPUR: It is likely for low cost carrier AirAsia Bhd to report a larger core net loss of RM2.7 billion from a core net loss of RM1.9 billion forecasted earlier for the full financial year 2020 after it posted lower than expected financial numbers in the second quarter (Q2).

AffinHwang Capital in a report also cut AirAsia's financial year 2021 and 2022 core net loss to RM581 million and RM83 million, respectively, from RM276 million and RM75 million forecasted previously, after incorporating a lower revenue projection due to the weaker-than-expected recovery in travel demand and prolonged travel restrictions imposed by various countries.

In Q2, AirAsia's revenue plunged 95.9 per cent to RM118.96 million from RM2.9 billion posted previously, dragged by fuel swap losses and the group's hibernation of its fleet at the end of the first quarter.

The low cost carrier posted a net loss of RM992.9 million in Q2, from a net profit of RM17.3 million recorded a year ago, due to significant collapse in demand from the widespread border closures and travel restrictions dragged by the Covid-19 pandemic.

AffinHwang said on a cumulative basis, AirAsia's six months' core net loss of RM1.6 billion was below market and its expectations due to lower-than-expected revenue.

"The business environment for the aviation industry remains very challenging and we expect AirAsia to continue reporting losses in the coming quarters. This should in turn weigh on its share price.

"Nonetheless, we expect AirAsia to continue running its business as a going concern, in anticipation of a liquidity boost from new loans and equity raising," it said in a note today.

AffinHwang has maintained its "sell" call on AirAsia.

In tandem, AffinHwang has cut its 12-month price target to 46 sen from 54 sen based on a higher 1.0x 2020 book value from 0.8x 2020 book value.

"As we believe the worst is now behind us, we believe 1.0x book value is a fair benchmark for future equity-related fundraising exercises," it said.

Key upside risks are stronger-than-expected rebound in passenger volume, stronger-than-expected quarterly earnings due to savings from its cost optimisation initiatives, and value-accretive M&As (merger and acquisitions), the research firm said.