Investment Highlights

• We maintain BUY call on Capital A with a higher fair value (FV) of RM1.70 (from RM0.96/share previously) based on: (i) disposal value of RM1.63/share for the aviation segment; and (b) 1x FY24F PE for its logistics, digital and other businesses. Our FV reflects a neutral 3-star ESG rating based on our in-house methodology.

• The group delivered a strong 1QFY24 core net profit (CNP) of RM273mil, which on an annualised basis came ahead of our and street’s FY24F earnings by 39%-41%. Recall, the group registered core net losses (CNL) over the past 4 years since the Covid-19 pandemic began. Hence, there are no comparable quarters.

• We raise FY24F-FY26F CNP upwards by 25%-70% to account for a stronger recovery momentum with higher capacity, revenue per kilometer (RPK) assumptions. Our earnings forecast does not incorporate earnings loss from disposal of the aviation segment for now.

• YoY, Capital A’s 1QFY24 revenue doubled from a broad- based recovery, particularly from the aviation segment which saw strong operating metrics including capacity growth, higher average fares and ancillary income per pax . 1QFY24 CNP saw a 32% YoY decline due to the reversal of a maintenance provision in the corresponding period.

• QoQ, Capital A’s 1QFY24 revenue rose by 8% from the sequential recovery momentum, with both aviation and engineering segments seeing growth with engineering seeing higher base and line maintenance activities from increased flights. 1QFY24 earnings turned positive to RM273mil with EBITDA doubling, driven by the stronger topline for the aviation segment.

• The group reaffirmed key milestones for its regularisation plans, which includes:
  ➢ 2Q24: Submission of the circular and approval fromBursa by the end of June 2024
  ➢ 4Q24: Completion of the regularisation plan

• We continue to like Capital A and believe investors should be positioned towards the group post-disposal of the aviation segment due to: (a) favourable outlook for the low- cost carrier segment, and (b) relative earnings clarity from the aviation services businesses moving forward. Valuations currently appear attractive at a 48% discount to our FV, which largely reflects the transaction value of its aviation segment.

Source: AmInvest Research - 30 May 2024