KUALA LUMPUR: AirAsia Group Bhd’s share price jumped as much as 16%, or 42 sen, to an intraday high of RM3.05 — it is the largest single day gain since the low-cost carrier was listed in November 2004. The surge in interest in AirAsia came after the airline’s board declared a record high special dividend of 90 sen per share. The ex-date for the dividend falls on July 30.

Nonetheless, profit-taking emerged and the stock retreated from the day’s high to close at RM2.85, up 22 sen or 8.4% yesterday, valuing it at RM9.53 billion.Beside the bumper dividend, are there other reasons to own the aviation stock at the time crude oil prices seem attempting to breach US$70 (RM293.30) level and rising competition?

Bloomberg data show there are still nine “buy” calls, six “sell” calls, and seven “hold” calls currently, suggesting analysts are divided by their views on AirAsia’s earnings prospects. The highest target price (TP) pegged by analysts is RM5.20. AirAsia’s highest TP from the research community is at RM5.20 while the lowest is at RM1.56.

Last night, AirAsia group chief executive officer Tan Sri Tony Fernandes, who will pocket RM975 million from the special dividend, had on Twitter described that AirAsia is “now out of owning metal, [and] fully flexible”. “Dividend out all to shareholders as promised,” he posted, adding that more disposals are coming as management executing strategy to lighten the group and focus on two aspects, namely “move people from A to B and building sexy tech business”.

MIDF Research analyst Adam Mohamed Rahim, who maintained a “buy” call but with a lower TP of RM2.92 versus RM3.11 previously, pointed out that although AirAsia reported weaker first quarter of financial year 2019 (1QFY19) results, the airline’s load factor remained robust at 88%, and with expansion in revenue passenger kilometres outpaced growth in available seat kilometres.

“However, it is important to note that the strong load factor came at a lower average fares which declined 2.3% year-on-year,” he said in a note yesterday. Adam highlighted AirAsia’s strength on enhancing its cost structure, along with its efforts to rationalise revenue and cost via digitalisation efforts.

His positive outlook on AirAsia hinges on more prudent hedging policy, stable operations with added capacity and continuous improvement to derive higher values per kilometre flown.

Kenanga Research analyst Adrian Ng upgraded the stock to outperform yesterday. “We deem the [1QFY19] results to be broadly in line, as we expect stronger performance in subsequent quarters due to expanded capacity and seasonality,” he noted.

However, some are more cautious about the low-cost carrier. AmInvestment Bank Research, for instance, downgraded the stock to a “hold” call from a “buy” call previously. “We revise our fair value to RM2.97 [from RM3.04 previously] and cut our forecasted FY19 to FY21 net profit by 32%, 15%, and 6% respectively largely to reflect: A weak 1QFY19 results and higher interest expense arising from the special dividend that will cost AirAsia about RM3 billion,” it noted.

CIMB Research analyst Raymond Yap maintain his “reduce” rating on AirAsia, with a slightly higher TP of RM1.56, from RM1.50 previously, as he foresee future quarters’ earnings to be under more pressure.

In his research note yesterday, Yap commented that AirAsia may have to endure higher maintenance provisions after it completes the sales of 25 aircraft to Castlelake and leaseback subsequently. “Also, [accounting standard] MFRS16 (Malaysian Financial Reporting Standards 16) will contribute to higher depreciation and interest expense,” he said, adding that other risks includes rising jet fuel prices, weaker ringgit, and International Maritime Organisation 2020 new regulation.

Nevertheless, Yap opined that AirAsia’s share price would be supported through August until the ex-date for the entitlement of 90 sen dividend. “The poor results will likely shock the market and cause analysts to slash their earnings forecasts, although the share price may be supported in the next two months by the 90 sen special dividend,” he said.

https://www.theedgemarkets.com/article/contrasting-views-airasias-prospects-among-analysts