KUALA LUMPUR (Aug 30): Capital A Bhd was the second most actively traded stock on Bursa Malaysia after reporting a net profit of RM1.12 billion for the second financial quarter ended June 30, 2023 (2QFY2023).
The counter saw 27.65 million shares change hands, almost double its 200-day average trading volume.
Meanwhile, shares in the group rose as much as 8.5 sen or 8.9% to RM1.04 in Wednesday morning trade.
At the time of writing, the stock had retreated slightly to RM1.02, still 6.5 sen or 6.81% higher than its last closing price of 95.5 sen, giving the group a market capitalisation of RM4.21 billion.
On Tuesday, the group announced that it returned to the black in 2QFY2023, from a net loss of RM931.22 million a year earlier, thanks to a strong recovery in demand for both domestic and international travel.
The last time Capital A's net profit exceeded the RM1 billion mark was in 1QFY2018, when it posted a net profit of RM1.14 billion.
The rise in earnings was helped by a gain of RM1.37 billion from the remeasurement of an associate to subsidiary, Asia Aviation Public Company Ltd (AAV), in June, the group said in a bourse filing on Tuesday.
Earnings were also boosted by a lower foreign exchange (forex) loss of RM158.6 million, versus RM345.4 million for 2QFY2022. The forex loss was due to the appreciation of the US dollar against the group’s local currencies.
Meanwhile, quarterly revenue more than doubled to RM3.15 billion, the group's highest since the Covid-19 outbreak.
HLIB Research raised its target price (TP) for Capital A to RM1.45 from RM1.15 earlier, based on a price-earnings ratio of 10 times FY2024 forecast earnings per share (EPS) of 18.4 sen, as the group continued to show improving results and took advantage of the improving air travel outlook in the region.
"We expect further potential upside to our TP should the Practice Note 17 regularisation plan be successfully executed," HLIB said, maintaining its "buy" rating of the stock.
"Air travel demand recovery remains on track, as more countries have reopened borders and further relaxed travel requirements. Capital A will only be able to fully reactivate the group’s 204 aircrafts by December 2023/January 2024 (from previously targeted August 2023) due to MRO (maintenance, repair, and operations) constraints. The management is upbeat on the Chinese market, targeting a 70% capacity recovery by 3QFY2023, and 100% by 4QFY2023.
"The management also remains positive on the current yield environment, as demand remains healthy, while airlines have become less competitive. Cambodian operations (a 51%-owned subsidiary) are targeted to commence operations by November 2023," HLIB said.
On the other hand, MIDF Research reduced its TP to 90 sen from RM1 prior, based on revised eight times FY2024 forecast EPS of 10.7 sen.
"With its current valuation aligning closely with its pre-Covid historical mean, we maintain our 'neutral' call on the stock. A key driving factor would be faster-than-expected restoration of its network and capacity to pre-Covid levels," MIDF said in a note.
MIDF cut its earnings forecasts for Capital A for FY2023 to FY2025, accounting for the accounting consolidation of AAV, which operates Thai AirAsia, in June 2023.
"With the addition of more seat capacity, the load factor is projected to remain strong at close to 90%. The delay in full fleet reactivation, initially set for August 2023, is due to shortages of components and cabin furnishing, as well as maintenance needs for ageing aircraft.
"The group now aims to reactivate the additional 35 aircraft by December 2023. Nonetheless, we anticipate further upside from the current high-yield environment. In 2QFY2023, fares remained 15% higher than pre-Covid levels, and it is expected to surge in the second half, reaching a peak in 4QFY2023.
"We also draw optimism from the upward trajectory of ancillary revenue per pax, standing at RM49 in 2QFY2023 (up 37% versus 2019 levels), driven by strong new product initiatives and dynamic pricing," MIDF said.