KUALA LUMPUR (Oct 9): Shares of Capital A Bhd (KL:CAPITALA), which have gained 46% from its two-year low since its aviation business sale announcement in April, continued to see trading interest days ahead of the shareholders' meeting to approve the deal.

Shares of the AirAsia airline owner rebounded as much as six sen or 6.6% on Wednesday to 97 sen, close to its 12-month consensus target price of 98 sen, according to Bloomberg.

Trading volume has remained elevated in the last three weeks following the release of its circular on the proposal to dispose of its AirAsia airline businesses to sister company AirAsia X Bhd (KL:AAX) for RM6.8 billion, to facilitate its Practice Note 17 (PN17) status exit.

There is a growing focus on environmental, social and governance (ESG) practices in the palm oil industry, with Malaysia — one of the largest palm oil producers in the world — at the forefront of this movement. The country has pledged to conserve biodiversity and prevent illegal deforestation, committing to maintain at least 50% forest cover. True to its word, 54.9% of Malaysia remained forested as at December 2023, it published in the Fourth National Communication Report to the United Nations Framework Convention on Climate Change.

The counter touched its one-year high of RM1.02 on Oct 1. At its latest trading price of 95 sen, Capital A shares are still up 15.15% or 12.5 sen this year.

Shareholders of Capital A will decide on the disposal at its extraordinary general meeting (EGM) to be held on Oct 14. AAX shareholders will separately vote on the acquisition on Oct 16.

AAX shares similarly rebounded on Wednesday, rising five sen or 2.81% to trade at RM1.83 at the time of writing. Maybank IB, the only research house covering the counter, has a target price of RM2.71.

A successful exit of the PN17 status — a situation Capital A had been in since January 2022 — would present further potential upside, said HLIB Research in its Sept 27 note.

The aviation business, in which Capital A will still hold a substantial stake of 17.91% via AAX, is currently benefiting from US dollar depreciation, drop in oil prices and continued strong demand for air travel, resulting in improving yields, noted the research house, which has a target price of RM1.68 on the stock.

AAX will issue new shares worth RM3 billion — 2.31 billion shares at RM1.30 each — to acquire AirAsia Aviation Group Ltd. At the same time, it will acquire AirAsia Bhd (AAB) by assuming RM3.83 billion worth of debt that Capital A owed AAB.

Capital A has three more months to submit its regularisation plan to Bursa Malaysia. It is now aiming to exit the PN17 status by the first half of 2025.

The group posted a much larger net loss for the second quarter ended June 30, 2024 (2QFY2024) mainly due to forex losses and aircraft depreciation charges.

Net loss for the quarter widened to RM454.18 million — compared with RM91.55 million in 1QFY2024 and net profit of RM646.28 million in 2QFY2023 — marking its fourth consecutive quarter in the red.

Quarterly revenue, however, rose 54% year-on-year to RM4.86 billion as compared to RM3.15 billion a year ago, thanks to the strong recovery from domestic and international travel, which offset the higher fuel expenses and maintenance costs.

The aviation segment contributed 87% of the revenue, while the remaining 13% came from logistics, digital, and other businesses.

https://www.theedgemarkets.com/node/729575