A RESEARCH house has cut the Target Price (TP) for AirAsia X Berhad’s (AAX) share to zero after the long-haul budget carrier recorded its biggest ever quarterly net loss.
CGS-CIMB Equities Research, in maintaining a reduced rating on the stock, said in a note today that the airline group’s net liability position prompted the cut of the target price from 7 sen to zero.
“Maintain ‘reduce’ and cut the target price to zero, as AAX already fell into a net liability position as at March 31, with the worst yet to come,” it said.
The target price is the fair valued future price for a stock based on historical earnings.
This is set to improve to 40% for FY2021 and 50% for FY2022.
“Even if borders reopen, AAX may have to be a lot more selective on the routes it flies,” it added.
AirAsia X recorded a net loss of RM549.7 million for the first quarter ending March 31 against a net profit of RM43.33 million in the same quarter last year.
Revenue on the other hand fell 21% to RM924.09 million as seat capacity and the total number of passengers carried decreased.
It is worth noting that AAX’s first quarter core net losses of RM380 million was 10 times more than that recorded in the same quarter last year, as passenger traffic declined as a result of Covid-19 and the closure of Malaysia’s borders since the enforcement of the movement control order as well as that of other countries.
While domestic travel is picking up, AAX has to wait longer until international borders reopen.
Its fleet has also been grounded since March 28, except for some cargo flights.
“AAX is now in a desperate attempt to grasp at all the straws it can find. We believe AAX has not been paying its lessors, maintenance providers and suppliers since 4Q19,” CGS-CIMB said.
“Lessors are unable to do anything about this effective default of the operating lease contracts, as repossessing the planes may leave them looking in vain for replacement customers.”
The report also noted that the airline group spent RM140 million in cash in the Q1, which leaves it with RM219 million in reserve as at March 31.
It added that AAX only has the capability to pay salaries until the end of FY2020, assuming that the cost for total salaries for 1Q20 is RM105 million and it has been reduced to RM70 million per quarter for the rest of the year.
This, however, does not take into account its obligations to suppliers.
The airline is negotiating with suppliers to reduce aircraft lease rates and to pay on per-use basis to early return leased aircraft that is in excess of future requirements, to reduce airport charges, to revisit terms with business partners and to restructure its fuel hedges with the remaining 30% of counterparties that have yet to agree to the deferment of payment.
CGS-CIMB also projected that the airline was unable to survive without cash injection, even if it has suppliers’ support.
On that note, it added, the airline was negotiating with banks for a RM500 million loan, for which it is looking to get Danajamin Nasional Berhad to guarantee 80% of the financial facility.
“Our view is that it will be unlikely for any banks to agree to provide liquidity unless there is shareholder support,” it said.
It also said there is no evidence of individual shareholders of AAX or AirAsia indicating willingness to top up equity.
Additionally, the government has not offered state backing aside from Danajamin serving as a loan guarantor.
Hence, CGS-CIMB believed that AAX is unable to secure the debt or equity funding it needed to see through the Covid-19 pandemic.
THE MALAYSIAN INSIGHT