KUALA LUMPUR (Dec 12): Capital A Bhd's wholly owned AirAsia Aviation Group Ltd's (AAAGL) entry into Cambodia with Sivilai Asia is deemed positive but it could take longer than expected before the venture turns profitable, according to Kenanga Research.
The research house maintained a “market perform” call and target price of 60 sen on Capital A as it liked it for being a beneficiary of the recovery in air travel as the pandemic comes to an end.
The target price was derived from sum-of-parts valuation of Capital A’s aviation business at 10 times FY2023 price-to-earnings ratio (PER) — at a discount to peers average due to its smaller market capitalisation — and the group’s digital assets at 30% discount to Axiata Group Bhd’s Boost PER.
The research house's analyst Raymond Choo Ping Khoon noted that the foray into Cambodia enables AAAGL to operate in various existing markets where it already has a presence and operations, thus enhancing its scalability, network connectivity and further reducing operating costs. The latest move by AirAsia also provides greater access to its domestic market and connects it to the international markets across Asean.
“Specifically, Cambodian passengers will be able to connect to over 150 other destinations in over 20 countries where AAAGL operates by connecting to flights operated by other AAAGL airlines.
“However, we expect the recovery of Cambodia’s tourist arrivals to be gradual, only returning to the pre-pandemic level in 2026-2027 which means the gestation period for venture will be long,” he wrote in a note on Monday (Dec 12).
AAAGL will hold a 51% stake while Sivilai Asia will hold 49% in the joint venture company known as AirAsia Cambodia with an initial capital of US$5 million (RM22 million).
Cambodia marks the fifth Southeast Asian destination that AirAsia will be foraying into after Malaysia, Indonesia, Thailand and the Philippines. The joint venture is expected to commence operations in late 2023. Pre-pandemic, AirAsia operated 90 weekly flights from Malaysia and Thailand to Cambodia and is currently flying about 49 weekly flights.
Choo cited experts have projected flight revenue in Cambodia to grow at a 2022-2026 compound annual growth rate (CAGR) of 37% to an estimated US$147 million (RM646 million).
Presently, there are six registered Cambodian airlines which are operating, namely Bassaka Air, Cambodia Airways, Cambodia Angkor Air, JC International Airlines, Lanmei Airlines, and Sky Angkor Airlines. However, there is only one low-cost or hybrid local airline based in Cambodia with a fleet of four aircraft.
“Given Cambodia’s population of 17 million people and 6.6 million international tourist arrivals in 2019, with 1.2 million international tourists arrivals in the first nine months of this year, there is potential for growth in Cambodia,” he said.
Amplifying the growth potential are Cambodia’s low-cost carrier market penetration of 28% which offers room for growth as compared to other Asean countries including Malaysia, Thailand and the Philippines having penetration in excess of 50%, and experts’ projections of Cambodia’s international tourist arrivals to hit about seven million in 2026 or 2027, and up to 7.5 million in 2028.
Looking into 2023, Choo projects Capital A’s system-wide revenue seat kilometres (RPK) to grow 52% to 35 billion in FY2023, after recovering by 19 billion to 23 billion in FY2022, based on the research firm’s forecasts.
He said Capital A expects its passenger traffic to continue to rise moving into 2023, judging from the encouraging load factors recorded at 159 international routes relaunched in the second quarter of this year.
This is in addition to the group’s growing digital business, leveraging its strong AirAsia brand and AirAsia’s existing client base, and besides its dynamic and visionary leadership that should help to steer it out of the current financial difficulty.
As at 11.05am on Monday, Capital A’s share price was half a sen or 0.84% lower at 59 sen, bringing the group a market capitalisation of RM2.42 billion.