KUALA LUMPUR (Jan 9): Capital A Bhd's plan to sell its aviation business to its sister company AirAsia X Bhd (AAX) is seen as positive by analysts, despite a lack of details on the deal currently, as the disposal will pave the way for the group to exit its Practice Note (PN17) status.
Capital A on Monday announced that it will dispose of its aviation businesses, namely AirAsia Bhd (AAB) and AirAsia Aviation Group Ltd (AAGL), to AAX, with the consideration to be negotiated at a later date, in both cash and/or shares.
The deal, which is part of the group’s consolidation plan, would involve Capital A divesting all of its short-haul airline businesses in Malaysia, Thailand, Indonesia, and the Philippines to AAX, which currently operates only mid-haul flights.
“From the risk perspective, we are positive as we deem the disposals are necessary to uplift Capital A from its PN17 status or risk triggering a trading suspension,” said TA Securities in a note on Tuesday (Jan 9).
TA Securities noted that Capital A’s shareholders will continue to hold shares in the aviation segment via AAX as Capital A is expected to record a gain on dilution of interest in AAB and AAGL, as well as the deconsolidation of these two entities from Capital A as a result of the proposed disposals.
“Thereby [it] is expected to improve the shareholders’ equity of the group in its effort to regularise its financial conditions,” it said.
The research house maintained Capital A’s earnings projections and financial standing, pending the signing of a definite agreement and negotiations on the disposal considerations.
“We advise investors to stay out of Capital A’s restructuring exercise until more clarity on the AAX share entitlement [emerges], which would depend on the price-fixing of new AAX consideration shares and the final disposal considerations,” it added.
The definite agreement is subject to shareholders approving the proposed disposals and other corporate exercises, such as a potential distribution-in-specie of part of the consideration shares to Capital A's shareholders, among others, said TA Securities.
Capital A may experience potential earnings leakage from airline biz sale
Meanwhile, Kenanga Research, which also maintained its forecast on Capital A, said the disposal is expected to result in greater clarity of investment between Capital A — being the aviation services and digital businesses provider — and AAX, a pure aviation business consolidating both long- and short-haul routes under the AirAsia brand name.
“This would result in the development of a more focused shareholder base, which is also expected to facilitate a business-centric valuation of the separate entities and potentially unlock value for shareholders. Once the sale is completed, Capital A will focus on four businesses, namely Teleport, Santan, BigPay, and Asia Digital Engineering Sdn Bhd," it said.
However, Kenanga opined that there could be potential earnings leakage or losses to Capital A from revenue and profit contributions following the sale of its airline business to AAX.
While being mindful of Capital A's PN17 status, the research house said it continues to like Capital A for being a beneficiary of the recovery in air travel post-pandemic, its growing digital business, leveraging its strong AirAsia brand and AirAsia’s existing client base, as well as its dynamic and visionary leadership that should help steer it out of the current financial difficulty.
At the time of writing, Capital A shares were down 2.5 sen or 2.96% at 82 sen, with a market capitalisation of RM3.49 billion. Meanwhile, AAX was one sen or 0.51% higher at RM1.97, valuing the group at RM880.73 million.