AirAsia is moving from the traditional model of owning aircraft to become an asset-light airline. The company plans to fully shift to the new model by completely withdrawing from aircraft ownership, a move that would bring the obvious benefit of lowering its financial liabilities.
During AirAsia’s conference call with analysts last Wednesday, its management said it is targeting to sell another 19 aircraft this year.
AirAsia is also focusing on its “digitalization” agenda, management added.
The analyst said AirAsia would be looking to secure a deal similar to what it achieved last year when it went into sale and leaseback agreements that helped it raise a lot of funds.
AirAsia’s management expects to raise around RM1.5bil from the sale and leaseback of its remaining 19 aircraft.
Last year, the airline group sold 79 aircraft and 14 aircraft engines to US private investment firm Castlelake LP in a deal worth RM4.38bil.
Following the success of the sale, AirAsia had last week announced a bumper dividend of 90 sen a share, which is worth more than RM3bil in total payout.
For shareholders of AirAsia, this strategy has worked out well. AirAsia began its aggressive sale and leaseback programme and dishing out dividends around 2017.
Here’s an interesting fact: AirAsia shareholders who bought the company shares on Jan 2, 2017 would have paid RM1.78 per unit. Since then, that’s exactly how much the airline has paid back in dividends, giving back those investors their entire cost of buying those shares.
“AirAsia is a different company now. It is transitioning into an asset-light model, focusing its services through its platform and on-the-plane experience as well as its mobile wallet,” an analyst said.
Going forward, though, not all analysts have a positive view on the airline’s earnings growth prospects.
Going by Bloomberg data, analysts have a varied target price on AirAsia’s shares, ranging from RM1.56 to RM5.20.
For the first quarter ended March 31, AirAsia posted a 92% drop in net profit to RM96.09mil compared with RM1.14bil recorded last year, when it recorded extraordinary gains. Its shares closed at RM2.88 last Friday.
CIMB Research analyst Raymond Yap expects AirAsia’s future earnings to be under pressure, stemming from rising operating costs and higher depreciation as well as interest expenses due to the Malaysian Financial Reporting Standards 16.
He added that other risks included higher fuel prices and a weaker ringgit against the US dollar.
“The poor results will likely shock the market and cause analysts to slash their earnings forecasts, although the share price may be supported in the next two months by the 90 sen special dividend per share,” he said in a report.
Yap has recommended investors to sell their positions in AirAsia prior to the dividend ex-date on June 30.
“We recommend investors to take advantage of any share price upside post-announcement of the 90 sen special dividend to sell into strength, and to sell their AirAsia holdings prior to the dividend ex-date on June 30, 2019, to avoid the rush out of the door,” he said.
Although AirAsia’s management has highlighted that it is targeting to continue with special dividend payments to shareholders for every two years, Yap believed the group is unlikely to declare additional special dividends in the near future beyond the 90 sen per share it had announced.
“Continued losses at AirAsia India and Indonesia AirAsia may require the group to provide further equity injection or continuous working capital support,” he said.
A different view is held by Nomura Research analyst Ahmad Maghfur Usman, who has the highest target price of RM5.20 for AirAsia shares. He expects AirAsia’s core earnings in financial year 2019 (FY19) to double to RM1.37bil compared with RM656mil last year.
“We remain optimistic on the earnings outlook on the back of lower fuel costs, coupled with the turnaround from its Asean affiliates, while we expect losses from India to narrow on improved scalability as passenger volumes increase,” he said in a research note.
For this year, AirAsia is targeting to add 18 aircraft including additional 11 for AirAsia India.
In terms of its digital business, AirAsia is targeting to roll out remittance and lending products and expand its BigPay offerings to other Asean countries this year.