KUALA LUMPUR (Jan 24): CGS-CIMB Research has maintained its “reduce” rating on AirAsia Group Bhd (AAGB) at 60.5 sen with a lower target price of nine sen (from 14 sen) as it revised its RNAV calculation.

In a note Jan 21, the research house reiterated the view that it is not apparent how AAGB will be able to uplift itself from Practice Note 17 (PN17) status without significant equity capital raising.

To recap, AAGB was classified as a PN17 listed issuer from Jan 7.

CGS-CIMB said since AAGB’s auditor had expressed material uncertainty related to going concern in its audit report for the FY20 accounts, AAGB will need to have shareholders’ equity of at least 50% of its paid-up share capital (or at least RM40 million without the "material uncertainty").

“With paid-up share capital of RM8.5 billion as at Sept 30, 2021, this means that AAGB will need a minimum shareholders’ equity of RM4.2 billion.

“By contrast, AAGB had a negative shareholders’ funds position of RM3.2 billion as at Sept 30, 2021; hence, in order to be uplifted from PN17, AAGB will need a RM7.4 billion boost to its shareholders’ funds on a proforma basis,” it said.

The research house said one of AAGB’s options to reduce the gap is for AAGB to obtain shareholders’ and court approval for a capital reduction.

It said this means that RM5.8 billion of retained losses (as at Sept 30, 2021) can be offset against paid-up share capital of RM8.5 billion, leaving a residual paid-up share capital of RM2.7 billion.

“In this way, AAGB will need to have shareholders’ funds of at least RM1.35 billion, or ‘only’ a RM4.55 billion boost as at Sept 30, 2021 (RM1.35 billion [plus] RM3.2 billion) to exit PN17 status,” it said.

Meanwhile, CGS-CIMB said even with a potential capital reduction, AAGB may struggle to uplift its PN17 status with a huge RM4.55 billion gap in shareholders’ funds.

It said the RM650 million warrants and RM778 million in remaining RCUIDS may not be converted into shares soon with the share price below conversion prices.

“AAGB may have to sell down stakes in its various digital businesses to below 50% in order to benefit from fair value revaluation gains, but it is difficult to predict if/when this may happen,” it said.

At midday break Monday, AAGB dipped 1.65% or one sen to 59.5 sen, with 4.27 million shares done.