AirAsia’s deal to sell 25 existing aircraft to Castlelake for US$768 million may be a negative for the carrier’s earnings, but it’s likely to herald special dividends, Nomura said in a note on Wednesday.
It noted that AirAsia expects a gain of 174.9 million ringgit, or 0.05 ringgit a share.
The deal theoretically is a negative for earnings due to the absence of leasing income and higher leasing costs, offset by lower depreciation and interest cost, it said.
But it added that it’s a longer term positive as it removes the residual risk of the aircraft assets, which are around seven years old on average.
“The completion of AirAsia’s major sales and leaseback exercise will de-gear its balance sheet materially to a net cash position by end FY18F and also allow it to dish out the much awaited special dividends to shareholders,” Nomura said. “We see its stronger balance sheet position to be a valuation re-rating catalyst for the airline group.”
It estimated the stock was trading at 7.7 times fiscal 2019 price-to-earnings, compared with global low-cost carrier peers’ average of 12 times.
Nomura also said its fiscal 2019 earnings forecast was unchanged as it expected the earnings outlook for Thailand and other overseas affiliates to improve on stronger foreign-exchange assumptions than it previously projected. It did cut its fiscal 2020 earnings forecast by 7.4 percent, including a 2.8 percent forecast increase in its dollar/ringgit assumption, which will impact costs.
It kept a Buy call with a 4.51 ringgit target price.
The stock was up 1.77 percent at 2.88 ringgit at 9:17 A.M. SGT.