MAKING FURTHER STRIDES: AirAsia is set on strengthening its footprint in the Indonesian market with the announcement of its conditional share sale purchase agreement together with its partner PT Fersindo Nusaperkasa to acquire Batavia.
KUCHING: AirAsia Bhd (AirAsia) is set on strengthening its footprint in the Indonesian market with the announcement of its conditional share sale purchase agreement together with its partner PT Fersindo Nusaperkasa to acquire PT Metro Batavia (Batavia) for a total consideration of RM254 million.
According to Kenanga Investment Bank Bhd’s research arm (Kenanga Research), the outlook for the acquisition was rather positive as AirAsia would be able to leverage on Batavia’s existing domestic customers to penetrate the local market faster while feeding Batavia with its international passengers.
“We do not see any unfavourable competition between Indonesia AirAsia and Batavia in Indonesia as both are catering to different market segments in Indonesia,” the research firm added.
The research note opined that on the assumption of a 70:30 debt-to-equity ratio, AirAsia would have to gear up by RM87.1 million for the acquisition which would increase its net gearing higher to 1.27 times from 1.26 times (based on first quarter 2012 numbers).
Batavia is a full service carrier (FSC) airline that serviced two main markets, namely Asia and Middle East. It is currently operating 35 aircraft with an average fleet age of 12 years.
Most of the aircraft are B737s with two A330s.
“Although Batavia holds about a 16 per cent to 18 per cent share of the Indonesia’s domestic market and is considered a small player for international market, AirAsia is likely to revamp Batavia’s fleet within the next three years after it streamlined Batavia’s new routes and business direction or even change its entire business model to low cost carrier (LCC),” said the research house.
AmResearch Sdn Bhd (AmResearch) shared similar sentiments for AirAsia albeit rather cautiously stating that, “From an earnings perspective, the acquisition looks pricey with Batavia generating circa US$2 million to US$3 million net profit per annum and the price tag of US$80mil implies a price earning ratio (PER) of 27 times.
“However, the acquisition, we believe, is not entirely about the purchase of earnings but rather, to accelerate AirAsia’s domestic presence in Indonesia and to acquire off-balance sheet assets such as route network, domestic franchise, market share, and comprehensive physical ticketing outlets,” stated AmResearch.
It opined that with the acquisition of Batavia, it would catapults AirAsia’s domestic position to the fourth largest player with a 10 per cent to 11 per cent market share.
In conclusion, Kenanga Research pegged a fair price of RM4.06 per share for AirAsia while AmResearch pegged a fair value of RM4.20 per share.