CAPITALA: Strategic Restructuring and Subsidiary Growth Bolster Outlook, Analysts Raise Target Price

A leading investment bank has reiterated an “Outperform” rating on a prominent regional airline group, citing significant strategic progress and a robust forward-looking strategy. The positive sentiment comes as the group prepares to shed its Practice Note 17 (PN17) status and capitalize on cost efficiencies previously associated with grounded aircraft, paving the way for renewed growth.

The analyst briefing highlighted a “new chapter” for the group, with the achievement of a key funding milestone at its long-haul affiliate nearing completion. This development signals an impending exit from its PN17 classification, with the latest target completion date set for no later than 2Q 2026. This regularisation exercise, along with sustained travel demand recovery, is seen as a crucial near-term catalyst for the company.

Performance Review and Key Drivers

Post-restructuring, management’s attention is squarely on aggressively scaling and monetizing its five key subsidiaries, which are expected to be primary drivers of future profitability and expansion. AirAsia Digital Engineering (ADE), the aircraft maintenance, repair, and overhaul (MRO) provider, has exhibited strong performance, leveraging its new 14-line MRO hanger facility that has significantly expanded capacity. With current hanger lines operating at full capacity due to high demand, management plans to add four more lines, targeting a total of 40 lines in Malaysia over the next three to five years, alongside exploring potential mergers and acquisitions in the region to broaden capabilities.

Teleport, the group’s logistics venture, has shown a strong financial turnaround, achieving consecutive quarters of positive net operating profit. Total cargo volume saw a significant 17% year-on-year increase in 3QFY25. Teleport’s future strategy focuses on network scaling, enhancing e-commerce capabilities, and utilizing its hybrid asset-light model that combines AirAsia’s passenger belly space with a network of over 50 third-party partner airlines. Similarly, AirAsia MOVE, the online travel agency (OTA), while experiencing strong growth in hotel bookings and user engagement, also saw declines in revenue and monthly active users due to pricing adjustments and a strategic pivot. It is now focused on becoming a value-driven OTA, leveraging its robust ancillary performance to improve market position and profitability.

The brand management entity, AirAsia Next, is tasked with managing and licensing the valuable AirAsia Brand and its associated intellectual property, generating steady royalty income through licensing agreements. Lastly, Santan, the food and beverage business, has demonstrated strong performance and is expanding its growth strategy beyond in-flight catering to become a broad-based B2B food distributor and a multi-channel retail brand.

Future Outlook and Valuation

The investment bank remains optimistic about the group’s prospects, underpinned by the impending PN17 exit and the sustained recovery in travel demand. The analysts have raised their 12-month target price to RM0.72, based on a sum-of-parts valuation, reaffirming their “Outperform” recommendation.