AirAsia Shares Drop to RM2.94 on Wednesday

25th May 2017

Shares of Malaysian airline AirAsia Bhd dropped 31 sen on Wednesday to RM2.94. According to an analyst, the stock was put under pressure to sell after the investors overbought.

He said:

The stock has risen more than 60% and hit a high of RM3.44 on May.

According to CIMB Research, the Malaysian budget carrier planned to record a strong Q1 2017 financial result on the back of a strong load factor (90%) and better-than-planned dividends from the AAC sale.

CIMB said:

However, on the balance of probabilities, we believe AirAsia’s share price upside is limited after the recent rally, with downside risks coming from multiple sources, both within and without AirAsia’s direct control.

The research house added that the higher fuel price could have an impact on the stock:

Saudi Arabia and Russia have agreed to extend oil production cuts to the first quarter of 2018, which could push oil prices higher. In our view, the Organisation of the Petroleum Exporting Countries (OPEC) and non-Opec nations may extend production cuts until the fourth quarter of 2018.

According to CIMB Research, the Malaysian airline was safe for this year as it locked in about ¾ of its jet fuel requirements at RM258 per barrel, but this might have only postponed the problem, which could come back next year.

CIMB said:

We estimate every US$5 (RM21) per barrel rise in jet fuel price would reduce group core earnings per share in 2017 by 5%

CIMB also pointed out that AirAsia’s share price started growing amidst the news of it planning to sell its leasing arm Asia Aviation Capital (AAC).

The sale was expected by the market and by us to result in a large special dividend of about RM1 per share. AirAsia is scheduled to announce the winning bidder for AAC very soon, and we expect the special dividends to be paid by the end of this year. However, beyond this, we think the outlook for AirAsia has clouded over.

AirAsia Plans Separate Event Ticketing Business

In the meantime, AirAsia has revealed plans to set up a separate entity for its event ticketing business RedTix. This will be done by acquiring a dormant shell company from RoKKi Media Holdings and renaming it RedTix Sdn Bhd.

RedTix is an AirAsia department with the focus on events ticket sales. The platform allows visitors to book tickets for concerts, theaters, sport games and more, as well as review and discuss them.

Currently, RedTix is run by directors How Kim Lian (nominated by AirAsia) and Sami Joseph El Hadery.