KUALA LUMPUR: Hong Leong Investment Bank (HLIB) research expects Capital A Bhd to turnaround in the fourth quarter ending Dec 31, 2023 (4QFY23) but post a core loss after tax minority interest (Latmi) of RM550 million for the financial year 2023 (FY23).
HLIB research adjusted its forecast for the year from a core profit after tax and minority interest (Patmi) of RM908 million to Latmi of RM550.2m for FY23, down by three per cent in FY24 and an upside of 2.8 per cent for FY25.
The FY23 numbers were adjusted after Capital A's third quarter financial results fell below its expectations.
3QFY23 worsened quarter-on-quarter to a core loss after tax minority interest (Latmi) RM222.8 million in 3QFY23 (affected by weak yields and higher fuel cost and US dollar strengthening.
Lower than expected yields, surge in fuel prices and the strengthening of the US dollar against regional currencies led to Latmi of RM652.2 million for 9MFY23, below HLIB research's FY23 expectation of a profit after tax and minority interest (Patmi) of RM90.8 million and consensus' Patmi of RM155.0 million.
"Nevertheless, management guided for a turnaround in 4QFY23 as air travel demand remains robust, along with down-trending jet fuel price and continued growth traction of its non-aviation segment," HLIB research said in its note today.
HLIB research has maintained a Buy call on Capital A with a lower target price of RM1.40 (from RM1.45).
"We expect further potential upside to our target price should the Practice Note 17 regularisation plan be successfully executed," HLIB research said.
Capital A management expects further update on its regularisation plan in December 2023 and and targets to complete the exercise in 1Q24.
HLIB research also said that Capital A is expected to undertake a disposal exercise that will involve AirAsia X, which recently had its own PN 17 status uplifted.
Capital A is also exploring the listing of Philippines AirAsia Inc and PT Indonesia AirAsia.
based on unchanged 10x FD PE tagged to FY24 EPS, as the group continues to show improving results, leveraging onto the improving air-travel outlook in the region.
We expect further potential upside to our TP should the PN17 regularisation plan be successfully executed.
Capital A has consolidated 43 per cent owned Thai AirAsia Company Ltd operations and Philippines AirAsia Inc has become an effective 100 per cent owned subsidiary since 2QFY23.
We have excluded RM1.6bn gain in 9MFY23, mainly attributed to RM299m lower adjustment for maintenance provisions in 1QFY23, RM1.4bn consolidation gain on 43% owned TAA in 2QFY23 and RM100m forfeited revenue in 2QFY23 and RM220m gain on disposal of engines.
It is weakening in the third quarter of 2023 because of weak yields, higher fuel cost and US dollar strengthening, but it is expected to improve.
The group's loss after tax and minority interest (LATMI) in 3QFY23 is lower RM222.8 million, dragged by the nine month of financial year 2023 (FY23) to lower RM652.2 million.
Meanwhile, HLIB research noted Capital A FY23 PATMI forecast of RM90.8 million and consensus RM155 million.
"Management guided for a turnaround in 4QFY23 as air travel demand remains robust, along with down-trending jet fuel price and continued growth traction of its non-aviation segment.
"The group has consolidated 43 per cent owned TAA operations and PAA has become an effective 100 per cent owned subsidiary since second quarter of 2023 (2Q)," HLIB noted.
In addition, the core LATMI improved by 66.4 per cent year-on-year (YoY) and 71.3 per cent year-to-date (YTD) to lower RM652.2 million, mainly due to higher group revenue (following increase in air travel demand) and lower jet fuel prices YTD, which was partially offset by stronger USD, higher maintenance and user charges costs.HLIB research said for PN17 status of Capital A, the regularization plan has been submitted to Bursa and is now awaiting the regulator's review.
"Management expects further updates on Dec 23 and targets to complete the exercise in the first quarter of 2024 (1Q24)," the firm said.
The firm mentioned air travel demand recovery remains on track as all countries have reopened their borders and normalised travel requirements.
The group also remains positive on the current yield environment as demand remains healthy while airlines have become less competitive (recently MYAirline has ceased operations).
HLIB research maintains its Buy call on Capital A Bhd with a lower target price of RM1.40 from RM1.45."We expect further potential upside to our TP should the PN17 regularisation plan be successfully executed," the group added.