KUALA LUMPUR (Nov 21): Hong Leong Investment Bank (HLIB), already bullish on Capital A Bhd (KL:CAPITALA), raised its outlook, citing the company’s expected exit from Practice Note 17 (PN17) by the first quarter ending March 31, 2026 (1QFY2026), following the aviation business sale to AirAsia X Bhd (KL:AAX) and dividend-in-specie of AAX shares.
Capital A will distribute 1.69 billion AAX shares to shareholders, giving 389 AAX shares per 1,000 Capital A shares on Dec 3.
On Friday, the firm said Capital A’s 91.5 sen share price is “severely undervalued”, as its AAX stake is worth 92 sen and the rest of the business 80-92 sen per share.
It raised its top-of-table 12-month target price of RM1.68 a share to RM1.70, after shifting to a sum-of-parts valuation. The firm stopped short of changing its earnings forecasts for the company.
Analyst opinions on Capital A are mixed, slightly leaning bearish, with an average 12-month target price of RM1.13, according to the analysts Bloomberg tracks. HLIB has the highest target price at RM1.70, while the sole 'sell' call on the stock expects it to trade at 60 sen a share.
HLIB said Capital A’s Aviation Group sale to AAX should complete by November 2025.
After the aviation carve-out, Capital A will shift to a travel and digital services group, focusing on five core non-airline businesses — its maintenance, repair and overhaul arm ADE, logistics arm Teleport, travel platform AirAsia MOVE, F&B company Santan, and its brand licensing arm Abc (AirAsia brand company). It also has a tentative 20% stake in the aviation business (AirAsia Aviation Group), planned for future dividend-in-specie distribution, with management aiming to eventually monetise it through a listing.
HLIB expects the AAX post acquisition of the aviation business to generate RM1.2 billion to RM1.5 billion in earnings by FY2026. At eight times price-earnings ratio, AAX’s market capitalisation could rise to RM9.6 billion-RM12 billion, implying a share price of RM2.64-RM3.30.
Capital A benefits from US dollar weakness, lower oil prices, and strong air-travel demand, with potential upside from 672.5 million AAX shares to be distributed in one to two years, HLIB said.
Capital A’s shares were down 0.55% to 91 sen a share at noon break on Friday, valuing the company at RM3.96 billion. The stock is down 9% year to date.
AAX closed 1.21% lower at RM1.63 a share, valuing the company at RM728.7 million. It is down 18.5% this year.