Friday 29 Mar 2024
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HONG KONG (Jan 31): Citigroup strategists downgrade AirAsia Group Bhd to neutral from buy and raise their price estimate to RM3.01 from RM2.92 as they expect dividend yields to generate 5.6% total return.

* AirAsia earnings multiple is around a 13% discount to global peers; valuation looks fair as a 13% earnings decline seen at AAGB vs 11% growth at peers, Citigroup strategists led by Kaseedit Choonnawat write in a revised note dated Jan. 31

** Note corrects errors in share-count that affect per-share estimates and PT and rating; fundamental views remain unchanged as do underlying estimates, Citi says

* Cuts 2019/20 earnings ests by 11%/19% to reflect higher aircraft ownership costs and lower leasing income after divesting 79 aircraft in 2018 and a planned 25 in 2019

* See risks from potentially higher airport charges and departure levies, which would equate to additional expense of ~19% of 2019 earnings on an annualized basis; says AAGB may convince Malaysian government not to increase those charges

* See limited pricing pressure in Malaysia’s short-haul market as three key players plan to ease growth into the summer; that’s inadequate to gauge stock-price direction for AAGB as it’s going through a cycle of financial transformation 

** “AAGB’s strategy at the current juncture is arguably akin to a private equity, where it invests in businesses from start-ups and exits at attractive valuation such as Thai AirAsia’s IPO in 2012 and the ongoing aircraft divestments”
 

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