CGS-CIMB drops target price on loss-making AirAsia X to zero

CGS-CIMB has cut its target price on AirAsia X Berhad (AAX) to zero on a "reduce" rating, following its dismal first-quarter results and amid fears that the budget carrier would fail to secure much-needed funding.

AirAsia X Bhd late last week posted a net loss of RM549.7 million (S$178.1 million) for the first quarter ended March 31; for the corresponding quarter last year, it had booked a net profit of RM43.33 million. 

Revenue fell 21 per cent to RM924.09 million as seat capacity and the total number of passengers carried decreased.

The brokerage called its first-quarter results "the opening scene for the horror movie of the year", with its net loss standing at 10 times of what it was a year ago, with countries around the world having closed their borders.

CGS-CIMB raised its loss estimates for the company, and added that the worst is yet to come, given that the full impact of Covid-19 would be felt fully only from the second quarter.

It added that the company's survival depends on it securing a new RM500 million bank loan, but the probability of obtaining one is low as no shareholder support seems forthcoming.

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It added that AAX is in a "desperate attempt" to grasp at all the straws it can find, and it believes that the company has also not been paying its lessors, maintenance providers and suppliers since Q4 FY19.

"AAX burned through RM140 million in cash during Q1 FY20 and only had RM219 million left as at March 31. Assuming Q1 FY20 salary costs of RM105 million are reduced to RM70 million per quarter for the rest of the year, AAX has enough cash to pay salaries only until the end of 2020, not even considering its obligations to its suppliers."

The report added that AAX is currently negotiating with suppliers to reduce aircraft lease rates and to pay on a per-use basis, to return its leases aircraft earlier, to reduce airport charges, to revisit terms with business partners and to restructure its fuel hedges with the remaining 30 per cent of counterparties that have yet to agree to defer payments.

It also said that domestic air travel is recovering in Malaysia, but with AAX being a long-haul airline, it will have to wait a lot longer for international borders to reopen.