PETALING JAYA: Kenanga Investment Bank has maintained its “market perform” call on aviation group Capital A Bhd following its turnaround in posting a RM57 million net profit for its first quarter ended March 31 (Q1 FY2023).
This is coming from a net loss of RM903.8 million in the same period last year. First quarter revenue surged over 200% to RM2.53 billion from RM811.74 million previously.
Airline revenue tripled on the back of an 88% load factor (80% of pre-Covid) and a 128% increase in passenger volume to 8.5 million.
“We continue to like Capital A for the recovering air travel market, its growing digital business, and its dynamic and visionary leadership that should help steer it out of the current financial difficulty.
“However, we are mindful of it still under the PN17 status,” Kenanga said.
The group fell under the PN17 classification as the Covid-19 pandemic took a heavy toll on their finances following strict lockdowns and closing of borders globally.
It noted the group is on track to announce the details of its PN17 regularisation plan in July 2023 with completion expected by end Q3 FY2023.
“The delay was due to the need to incorporate the latest FY2022 audited figures. We gathered that the group plans to divest its aviation group to AirAsia X in exchange of shares for subsequent distribution to its shareholders,” it said.
Capital A CEO Tony Fernandes said in January that, “Capital A can be out of PN17 status, definitely this year, and I hope much earlier than that”.
The group’s Q1 performance beat Kenanga’s expectations, accounting for 53% of its full-year net profit forecast and was also against consensus net loss estimate of RM166 million.
The investment bank raised its FY2023 and FY2024 net profit forecasts by 87% and 44%, respectively, and giving Capital A a higher target price (TP) of 84 sen from 67 sen previously.
Reactivating more aircraft
Kenanga said Capital A has reactivated 157 aircraft in the first quarter with plans to reach 215 deployed aircraft by end-2023.
With the reopening of China in March, both AirAsia Malaysia and AirAsia Thailand – which previously enjoyed considerable financial benefits from China routes – have been prioritising deploying capacity to China to capitalise on the pent-up demand, it said.
Its SuperApp is also expected to grow, underpinned by the continued resurgence of travel demand from borders reopening and tactical campaigns, alongside expected growth from airasia Food, Ride and Xpress, Kenanga added.
Meanwhile, MIDF Research maintained its “buy” call on Capital A with a higher TP of RM1 from 91 sen previously.
The research house noted Capital A has devised a strategy to relocate its aircraft to operating countries with higher market potential.
However, MIDF was not as concerned with Capital A’s PN17 status. Risks to its call included a further weakening of the ringgit against the US dollar, delay in full feet activation, and a lower-than-expected demand for the China market.
Meanwhile, risks to Kenanga’s call included slowing air travel amidst a global recession, sustained high jet fuel prices, Capital A’s inability to lift itself out of the PN17 status, and persistent cash burn at its digital assets.
At market close, Capital A’s share price fell 3.21% or 2.5 sen to 75.5 sen, valuing the low-cost carrier at RM3.13 billion.