PETALING JAYA: AirAsia Bhd’s debt burden will be lightened and its balance sheet will improve should the listing of the low-cost carrier’s 49% owned associate Thai AirAsia take off soon.

Analysts said AirAsia would be able to reduce its net gearing to below one times when its associates —Thai AirAsia and Indonesia AirAsia — book aircraft financing on their respective balance sheets.

“Whatever the hypothetical value (that Thai AirAsia can fetch), one thing is certain is that overnight AirAsia’s balance sheet will improve by half. The balance sheet value creation is something that has been expected for a very long time,” said an aviation analyst with a local bank.

It is worth noting that an estimated RM1.9 billion worth of aircraft financing attributable to the two foreign associates are currently parked in AirAsia’s balance sheet.

As at Dec 31, 2011, AirAsia’s debt stood at RM7.78 billion, cash at RM2 billion and shareholders funds at RM4.04 billion. AmResearch commented that in the event the amount for aircraft financing is excluded from AirAsia’s books, the airline’s net gearing would improve to 0.95 times from 1.4 times as at Dec 31, 2011.

However, AirAsia’s associates need to have a strong balance sheet in order to take over hefty sums of aircraft financing from the parent. An IPO to raise fresh capital will help to achieve that.

“We understand that the transfer of aircraft [funding] will only happen gradually as Thai AirAsia builds up balance sheet capacity to take up its own aircraft financing,” said AmResearch.

On Thai AirAsia’s IPO, analysts estimate the airline will be able to fetch a price-earnings ratio (PER) of at least eight times. This is based on an assumption that the IPO involves the issuance of new shares that will make up at least 30% of the Thai AirAsia share base (to meet the minimum listing requirement of 25% free float) and a net profit of at least RM200 million for FY12 ending Dec 31.

“Based on an eight times PER, Thai AirAsia will be valued at some RM1.6 billion,” said the aviation analyst.

It is worth noting that Singapore Airlines Ltd’s Tiger Airways fetched a forward PER of about 13 times when it floated shares on the Singapore Exchange two years ago. The low-cost carrier was loss- making when it went public. Thai AirAsia has fared better financially than Tiger Airways as it has been consistently profitable since 4Q09. Last year, it registered two billion baht (RM198.7 million) in net profit.

In addition, AmResearch said Thai AirAsia’s listing would realise the value of AirAsia’s stake in the former and estimated Thai AirAsia is worth some 70 sen per share.

It noted that Thai AirAsia still has RM30 million in accumulated losses that need to be reversed before AirAsia can start recognising its earnings.

“At the current earnings run rate, we estimate it will only take one to two more quarters before AirAsia can start equity accounting for Thai AirAsia,” AmResearch noted.

The research outfit added that the existence of a market value for Thai AirAsia upon listing should give a better reflection of AirAsia’s value to investors. AmResearch estimates that AirAsia’s current market cap only captures 25% of the value of its stake in its foreign associates.

Thai AirAsia’s IPO plan was made known some time ago. It was earlier speculated that the listing would take place last year. However, the massive flooding in Thailand and the unfavourable stock market conditions have delayed the IPO plan in Bangkok. An English daily yesterday reported that AirAsia is expected to raise some RM500 million from the listing of its Thai unit. However, this is way below the RM1 billion target that was earlier speculated.

The listing is said to be targeted for July this year with the prospectus expected to be out in May.


This article appeared in The Edge Financial Daily, March 16, 2012.