PETALING JAYA: The cancellation of the Visit Malaysia Year 2020 (VMY2020) campaign is expected to add pressure on airlines, including AirAsia Bhd, that are already suffering from weak air travel demand due to the Covid-19 outbreak, according to AmInvestment Research Bank (AmResearch).
The campaign was supposed to bring in 30 million tourists this year, and now it is expected to see a 5% drop in tourist arrivals.
With that, AmResearch is projecting AirAsia to incur a wider loss of RM985.4 million in FY20 against RM784.2 million in FY19, with a smaller net profit of RM258.9 million in FY21 versus an earlier estimate of RM482.3 million.
“We cut our fair value by 47% to 50 sen (versus 94 sen previously) based on 6.5 times revised FY21 earnings per share, at a 50% discount to its global peers (Ryanair and Southwest Airlines) to reflect AirAsia’s relatively smaller size.”
The research house explained that AirAsia’s earnings downgrade is mainly to reflect a 10% contraction in passengers carried in FY20, against a 5% contraction it assumed previously, against a backdrop of weak demand for air travel amidst the outbreak followed by the cancellation of VMY 2020.
It pointed out that the carrier has already seen a double-digit decline in its passenger numbers since February 2020.
AmResearch highlighted that AirAsia is trying to mitigate the situation by not extending expired aircraft leases as well as negotiating for lower lease charges and maintenance fees.
However, it opined that the airline is weighed down by the higher cost structure as a result of sales and leaseback and higher depreciation and finance costs under the new MFRS 16 accounting standard.
AmResearch is maintaining a “sell” recommendation on AirAsia.
“AirAsia’s key strategy to aggressively grow its top line has been thwarted by the Covid-19 outbreak.”
Furthermore, the cancellation of VMY2020 does not help and this makes it difficult for the group to offset the impact of the higher cost structure following the sale-and-leaseback of its fleet.
“However, we believe part of the budget previously allocated for VMY2020 could now potentially be relocated as airline aid to help the airline to get through the crisis from the Covid-19 pandemic,” it said.
