KUALA LUMPUR (March 1): Shares in Capital A Bhd were actively traded on Wednesday (March 1), rising as much as 4.5 sen or 6.52% to 73.5 sen, after analysts upgraded their calls and target prices (TPs) following its return to profitability in the fourth quarter ended Dec 31, 2022 (4QFY2022).

Even so, the company is projected to only return to full-year profitability in 2024 given its financial issues, which have pushed it into Practice Note 17 (PN17) classification.

The aviation stock closed Wednesday 2.9% higher at 71 sen, which translates to a market capitalisation stood of RM2.96 billion. Some 28.58 million shares were traded.

MIDF Research said Capital A reported core loss after tax and minority interest of RM2.42 billion for the financial year ended Dec 31, 2022 (FY2022), which was ahead of the research house's expectations. It anticipates the operator of AirAsia will return to the black in FY2024, having bled red ink since FY2019.  

The research house upgraded the stock to 'buy' from 'neutral', with a revised TP of 91 sen from 70 sen previously, as it revised upwards its earnings projection for the aviation company.

“As the results were above our expectations, we have adjusted our FY2023/FY2024 losses/earnings upwards by +49%/+39% to account mainly for higher contribution from associates, adjustments to capacity recovery to be in tandem with the group’s fleet plan and higher load factor for the airlines,” it said.

MIDF Research projected that Capital A would generate an annual loss after tax of RM454 million in FY2023, followed by an annual profit after tax of RM491.9 million in FY2024.

Kenanga Research analyst Raymond Choo Ping Khoon had also upgraded Capital A’s TP to 67 sen, from 60 sen previously,  but maintained his ‘market perform’ recommendation, as Capital A’s FY2022 result came in within its forecast.

“We continue to like Capital A for it being a beneficiary to the recovery in air travel as the pandemic comes to an end, its growing digital business, leveraging on its strong AirAsia brand and AirAsia’s existing client base, and its dynamic and visionary leadership that should help to steer it out of the current financial difficulty,” said Choo.

Nonetheless, Choo said that he is mindful that Capital A is still a PN17 company.

Quoting from Capital A’s analysts' briefing, Choo said the group plans to announce the details of its PN17 regularisation plan by mid-April 2023 with completion expected by the end of the third quarter of 2023.

“We gathered that the group plans to divest its aviation group to AirAsia X in exchange for shares for subsequent distribution to its shareholders,” Choo added.

On Tuesday (Feb 28), Capital A announced it returned to the black with a net profit of RM256.2 million in 4QFY2022 against a net loss of RM756.59 million in 4QFY2021, while revenue surged to RM2.37 billion from RM821.04 million previously.

For FY2022, its net loss narrowed to RM2.48 billion, from RM2.99 billion in FY2021, as air travel bounced back strongly in the fourth quarter. Revenue soared to RM6.61 billion in 2022 compared with RM1.84 billion in the previous year due to the relaxation of travel restrictions.