Major Disposals

Capital A has proposed to undertake i) a conditional share sale and purchase agreement with AirAsia Group (AAG) for the proposed disposal of AirAsia Aviation Group Ltd (AAAGL) for a disposal consideration of RM3bn to be satisfied via issuance of approximately 2.3bn new AAG shares at RM1.30/share; ii) a conditional share sale and purchase agreement with AAG for the proposed disposal of AirAsia Berhad (AAB) for a disposal consideration of RM3.8bn to be satisfied by way of AAG’s assumption of Capital A’s due to AAB of RM3.8bn; and iii) proposed distribution of AAG consideration shares of RM2.2bn in value to Capital A shareholders by way of dividend-in-specie.

Post completions of disposals and dividend-in-specie, Capital A will possess of those non-aviation business segments, including Move digital (ie: AirAsia Move & Big Pay), Aviation service (ie: ADE, Santan, DARTS, Capital A Consultancy), Logistics (i.e.: Teleport), Intellectual property (i.e.: the proposed SPAC to be listed on the Nasdaq in the United State), and the balance of 18.4% stake in AAG (Appendix A). With regards to the intellectual property segment, management indicates that it may no longer pursue the SPAC listing.

Who Is AAG

AAG Is a Dormant Company Set Up to Undertake:

1. proposed share exchange of all AirAsia X (AAX) shares with new AAG shares and to take over AAX’s listing status.

2. proposed issue of up to 223,536,402 free AAG warrants on the basis of 1 AAG warrant for every 2 AAG shares. Note that for this exercise, only those AAX shareholders are entitled to the free warrants.

3. Proposed Private Placement of New AAG Shares of RM1bn.

4. Proposed Acquisitions of AAAGL and AAB.

5. Proposed Capital Reduction.

Other Salient Information and Conditions Precedent:

1. The valuation of AAAGL (RM3.0bn) and AAB (RM3.8bn) is based on an independent valuation conducted by Deloitte Corporate Advisory Services, using adjusted NAV approach and DCF approach, respectively.

2. Capital A shareholders would be given AAG consideration shares on the basis of 397 AAG shares for every 1,000 Capital A shares via dividend-in-specie, assuming no conversion of Capital A warrants and
RCUIDS.

3. The adjustment ratio for Capital A theoretical ex-all price will be approximately 0.24x cum-price.

4. Capital A would record a gain from remeasurement of RM2.3bn (AAAGL disposal) and a disposal gain of RM6.1bn (AAB disposal).

5. Post disposals and dividend-in-specie, the shareholders’ fund of Capital A will return to surplus of RM492.8mn (minimum scenario) or RM1.7bn (maximum scenario).

6. Conditions precent will include approvals from Bursa Malaysia (regularisation plan), shareholders of Capital A (disposals of AAAGL and AAB), shareholders of AAX (share exchange), and High Court.

7. The disposals are targeted for completion by 3Q24 and the regularisation plan by 1Q25.

Our Views

Operationally, we are positive as the merger would create synergistic benefits to AAG as MAA and TAA can tap into AAX and TAAX’s presence in China, Japan, South Korea and Australia while AAX would benefit from growing in size with increasing bargaining power. From the minority shareholders’ standpoint, it would be win-win for all shareholders as Capital A shares can be lifted from the PN17 status and AAX shareholders will get the free warrants.

Impact

No change to Capital A’s earnings projections and financial standings, pending the fulfilment of conditions precedent.

Valuation

We maintain Capital A’s target price at RM0.77/share, which is based on a PE multiple of 9x CY24 earnings. Maintain HOLD

Source: TA Research - 26 Apr 2024