This article first appeared in The Edge Financial Daily on January 3, 2018 - January 9, 2018

AirAsia Bhd
(Jan 2, RM3.34)
Maintain buy with an unchanged target price (TP) of RM4.02: In a Bursa Malaysia filing last week, AirAsia Bhd announced the completion of its Indonesian arm Indonesia AirAsia’s (IAA) listing via a reverse takeover exercise with PT Indonesia AirAsia (AAID). This was pursuant to AAID’s acquisition of a 57.3% stake in IAA.

Prior to the acquisition exercise, AAID had completed a rights issue, raising 3.4 trillion rupiah (RM1.1 billion), while at the same time divested its coal trading and transportation business for 26 billion rupiah. It was noted that the proceeds will be used for working capital purposes.

We note that AirAsia Investment Ltd continues to hold a 20.95% direct interest in IAA. Following the transfer of IAA perpetual securities amounting to 1.3 trillion rupiah to AAID, this transaction translated into a 47.7% shareholding in the listed AAID.

IAA’s listing on the Indonesia Stock Exchange (IDX) would allow it to tap into the Indonesian equity market for funding. We opine that this would reduce its reliance on AirAsia. At the same time, it would also allow AirAsia to unlock the value of IAA as a listed entity.

We note that the listing of IAA followed the listing of AirAsia business entities in the stock markets of Malaysia and Thailand. Following this, management indicated that the listing of its Philippine arm will possibly take place in the financial year ending Dec 31, 2018 (FY18).

As we are positive on the news, we maintain our “buy” recommendation for AirAsia. Our TP is derived from a forward price-earnings ratio of 10 times FY18 earnings per share (EPS).

We like AirAsia because of the company’s continuous efforts to reinvent itself, introducing new digital offerings to ensure that it stays relevant in a highly competitive industry. AirAsia remains our top pick for the aviation sector predicated on stable demand growth with a conservative available seat kilometre expansion of +10%, as well as new areas of growth in AirAsia India and AirAsia Japan. — MIDF Research, Jan 2