KUCHING:AirAsia Bhd’s (AirAsia) may spin-off its leasing operation and list it on the Bursa Malaysia stock exchange.
Analysts from MIDF Amanah Investment Bank Bhd’s research arm (MIDF Research) highlighted that the potential valuation of the new entity could reach approximately half of AirAsia’s current market capitalisation of US$2 billion.
It is expected that free cash flow of circa US$40 million to US$50 million will be generated by the new unit within the first few years before it grows to US$100 million in the later years.
Apart from the sub-leasing of new aircrafts deliveries to its overseas associates, the analysts noted that the new leasing entity will lease the additional aircrafts to China and African countries.
To recap, in early 2014, the group was in talks with Airbus to defer more aircraft deliveries.
Subsequently, the group decided to defer the deliveries of seven A320s and 12 A320s in 2014 and 2015 respectively. This would give room for more sustainable capacity growth of eight to 10 per cent for FY14-15.
“As of September 2014, the group has an outstanding orderbook of 322 aircraft which consists of 58 A320-200s and 264 A320neos. The spinoff of the leasing operation will help to reduce its growing debt pressure.
“As of second quarter 2014 (2Q14), the group’s net gearing ratio stood at 1.95 times. The group may offer Dubai Aerospace Enterprise (DAE) a substantial stake in the new leasing unit.
“Meanwhile, the group CEO indicated his interest in opening a new route to Dubai via AirAsia X,” the research house observed.
“We made no changes to our earnings forecasts pending more disclosures on the possible spin-off of the new leasing operation. Separately, we view that the downward pressure on fare yield should have bottomed out in 3Q14 given the slower growth in industry-wide capacity.”
MIDF Research pegged a target price of of RM2.94 per share for AirAsia.