Analysts positive on AirAsia’s stake disposal of AACE

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Currently, AirAsia is pushing for all their remaining associates namely Thai, India and Japan to be consolidated by recognising them as a subsidiary within their accounts.

KUCHING: Analysts are generally positive on AirAsia Bhd’s (AirAsia) disposal of its entire 50 per cent stake in Asian Aviation Centre of Excellence (AACE).

In a filing on Bursa Malaysia, AirAsia announced that the group had on August 24, 2017 executed a Share Purchase Agreement with CAE International Holding Ltd (CAE) to sell AirAsia’s entire shareholding in AACE comprising 82.78 million ordinary shares, equivalent to 50 per cent of the issued and outstanding shares of AACE to CAE for a total consideration sum of US$100 million (or RM429.3 million).

The research arm of Kenanga Investment Bank Bhd (Kenanga Research) was positive on the disposal as it allows AirAsia to focus on their core airline business.

Additionally, the loss of AACE’s contributions has minimal impact in AirAsia’s earnings moving forward – only circa RM22 million of profits/annum that accounts for only one per cent of Kenanga Research’s financial year 2018 estimate (FY18E) core net profit (CNP).

It further noted that majority stakeholders (Tan Sri Tony Fernandes and Datuk Kamarudin) who own circa 33 per cent stake have incentives for dividends to be dished back to them in order to recoup the RM1 billion placements financing which they injected in FY16 for the additional 20 per cent stake and management had reiterated their intention to pay out a special dividend every two years.

“That said, we note that AirAsia had only dished out 50 per cent divided payout ratio (DPR) or RM500 million worth of special dividend back in FY13 when they recognised RM1 billion worth of fair value gains on the listing of Asia Aviation Pcl (major shareholder of Thai AirAsia).

“Based on a more conservative 50 per cent DPR, the sale of AACE would translate to special dividend of six sen per share,” Kenanga Research said.

However, it added that should AirAsia choose to keep the proceeds, the sale of AACE would bring AirAsia’s net gearing down lower by eight per cent to 1.16-fold, from 1.27-fold as of 1Q17.

Currently, AirAsia is pushing for all their remaining associates namely Thai, India and Japan to be consolidated by recognising them as a subsidiary within their accounts.

“They are targeting Thai to be consolidated by 2Q17 while the remaining two by the year end,” it said.

Meanwhile, the research arm noted that AirAsia has currently hedged 75 per cent of their fuel at US$59 per barrel (bbl).

In regard to the disposal of AAC, AirAsia has narrowed their bids to two final bidders and are underway to finalise the agreement which the research arm believed will be concluded by year end.

Overall, Kenanga Research noted that the sale would allow the group to recognise a gain in disposal amounting to RM187.6 million boosting FY17E net profit (NP) by 13 per cent.

However, these one-off gains will only be reflected in the research arm’s FY17E reported earnings.

“We continue to like the stock for its growth potential, competitive advantage in the aviation industry from its low operating costs, special dividend from the sale of AAC and further cost optimisation plans,” the research arm said.