Wednesday, June 12, 2013

Update on Airasia X's IPO

My previous article on the Airasia X's IPO was 6 months ago and it was based on its draft prospectus. I felt that it is injustice to the company if I do not update some of the details. The pricing is in fact even more bullish now than when I wrote the paper. It is now pricing the IPO at RM1.45, hence valuing the company at RM3.437 billion post IPO.

The amount to be raised is RM1.146 billion with RM286 million going to the selling shareholders.

Airasia X will now use 33.3% of its proceeds for repayment of bank borrowings. Others are for capital expenditure, working capital and listing expenses.

Now straight to the valuation. Obviously, after the December numbers, Airasia X has its financials updated. For FY2012, it registered a PBT of RM38 million. After stripping out the forex gain though, it was still registering losses. First quarter 2013, it registered a PBT of RM34.8 million. Assuming a full year 2013 annualised numbers, that may exceed RM150 million (assuming it reduces its financing costs and growth).

With the profitability, the valuation seems to be lower although it could still be at a high twenties PE or even 30x. Do note that I used PBT because the add back on deferred taxation is misleading .

Now the thing about this IPO is that it is a company which attracts global attention. The high valuation has been the same on IHH and it does not seem to deter these international guys to take a stake in the company. The original thought that retail portion is going to be bigger is not true - that actually surprised me when I heard it. Institutional portion is still 22.7% as compared to retail portion of 10.6%.

I do not invest in a company with such valuation, but again Airasia X is a growth company. It will be using up more cash as it is a capex heavy business, but one should not fight the attractiveness part of the brand and guys who are selling the IPO.

Other related article:
Why Airasia X may not be Airasia

8 comments:

keano said...

Hi Felice,

agree with you that AirAsia X do have the branding power.

What do you think about MAS? Is it true that a stock will be up after going through fundraising exercise like rights issue? Do you think that MAS is worth buying into for short term period?

Maybe you could do a write up on the effects of corporate exercise on share price movement. That might be a very interesting read for many people.

DayTrader said...

I am less optimistic on AAX compared to AA. The long haul business is competitive despite AAX's differentiation as a budget long haul service. Their foray in the long haul segment has had very mixed results and it will take some time for them to find the right formula. For that I think its risky at these kind of valuation. AAX's IPO is definitely a plus for AA though.

I am pessimistic about MAS. Its recent rights issue was something it had to go through to strengthen its balance sheet in order to continue operating. Besides paying off debt, it will take on more debt which is normal for airline companies and on paper it looks like the right move. But I am more suspect of how its managed and this whole cycle of capital reduction which punishes existing shareholders may resurface again if their turnaround plans do not pan out.

As a trading stock their could be some upside since it looks oversold technically, but investor suspicions on MAS runs deep.

DayTrader said...
This comment has been removed by the author.
Fung C.F. said...

I would rather look at AAX in a credit analysis perspective, as I guess even after they pay-off part of their borrowings using the IPO proceeds, they will still need to serve approx RM40m interests per year. That's awfully a lot of money.

At minimum, I want AAX to achieve an interest coverage of at least 3 times over EBIT, which is RM120m. Looking at the current pathetic profit margin, I don't see any chance of AAX achieving it.

Further, oil price is current at a manageable level. I can't imagine how AAX gonna win the race if the oil price starting to sprint off to above $120 per barrel.

This is a classic stock that I would shy away.

felicity said...

Me too, I am less optimistic on AAX than AA. AA has a proven business model with Southwest Airline, Ryanair, Easijet and of course AA itself. AAX is a much tougher one with tougher competition.

Jian Ming said...

What do you think of stripping out the foreign exchange gains/losses from the PBT? Taking these out would give a truer picture of PBT no? PBT for FY2010 would have been loss-making and FY2012 flat. For me, the FX exposure and the fact that AAX might relook Europe is a put-off. The European misadventure really caused them to bleed bad.

felicity said...

HI Jian Ming

Stripping out the forex gains / losses is the right thing to do. Nothing to do with performance.

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