MIDF Research updated its recommendation to AirAsia Group Bhd (AAGB) to 'sell' to 90.5 sen, with an unchanged target price of 68 sen.
In the firm's research note today, MIDF said the recent increase in AAGB share price is likely to have passed the valuation level following the sale of shareholding.
According to the research firm, the announcement of AirAsia Investment Ltd (AAIL) disposing of an equity stake of 32.67% in AirAsia India Ltd (AAI) to Tata Sons Private Ltd (TSL) at a price of US $ 37.66 million is long overdue.
“We see this development positively because the transaction will help improve AAGB's cash flow position. The management of the group revealed that the cash will be used as working capital in the first quarter of 2021, ”said the firm.
The AAGB cash balance so far is RM618.2 million based on the third quarter report ending 30 September 2020 (3QFY20) released last November.
The MIDF predicts the aviation sector will recover but only at a pre-pandemic level in the financial year 2021.
In addition, with the introduction of vaccines globally, market players in the aviation sector will also have a positive impact.
The group in a filing to Bursa Malaysia yesterday said AAIL has entered into a share purchase agreement (SPA) with TSL from India, which already has a 51% stake in AAI.
Bernama reported that the proposed disposal will provide a profit of RM152.58 million in the fourth quarter of 2020 to AAIL and the consolidated group.
"AAIL's net assets and cash balance will also increase by the same amount immediately after the implementation of this cash disposal," said AAGB.
As part of the transaction, there will be a recommendation option in relation to the remaining 16.33% of the AAI interest, which can be exercised by TSL at any time after the transaction is completed.
In addition, there are also selling options that can be exercised by AAIL in two stages, the first stage can be made from 1 March 2022 until 30 May 2022 and the second stage can be held from 1 October 2022 to 31 December 2022.
The total consideration for options granted for the remaining 16.33% of AAIL's interest is US $ 18.83 million.
The airline said AAIL had agreed to exempt unpaid brand license fees, which AAI had to pay to AirAsia Bhd under the brand licensing and technical services agreement dated December 30, 2019 following the Covid-19 pandemic.
The group added that this exemption would not have any material impact on earnings per share, net assets per share and gearing of AirAsia and its subsidiaries.
