AirAsia’s digital push a growth sweet spot

The tech sector has been delivering superb returns since last year because investors see it as a resilient growth business


AIRASIA Group Bhd’s recent bold digital business decisions to acquire Gojek’s Thailand and potential listing in the US could advance its business in the current weak environment.

Pangolin Investment Management analyst and director Mohshin Aziz said the technology sector has been delivering superb returns since last year because investors see it as a resilient growth business, far more resilient than any consumer products.

“There have been a few such listings around the world with mixed results, some did well in their listing debut and some did not,” he warned The Malaysian Reserve.

He added more importantly, AirAsia’s IPO was well-received and taken-up in full by investors globally.

“It boils down to the group’s ability to hit the sweet growth spot and be in tune with the wishes of prospective investors,” he said.

Last week, the company was reported to be considering a listing of its digital arm AirAsia Digital via a special-purpose acquisition company (SPAC) in the US to raise at least US$300 million (RM1.26 billion).

In a virtual interview, the company was reported to have been approached by a few SPACs and has engaged auditors for a deal to list the unit which comprises a travel and lifestyle services platform, logistics and fintech businesses.

It is also in discussions with other suitors including Malaysian and Indonesian private equity firms.

Related to its listing, however, AirAsia Digital had also proposed to acquire Indonesian ride-hailing and payments firm Gojek’s Thailand operations for a deal worth US$50 million, giving the latter a 4.76% stake in the airline’s lifestyle platform, SuperApp.

Following the acquisition, AirAsia will acquire Gojek’s business in return for US$50 million worth of shares in the SuperApp, valuing the division at around US$1 billion, over the pandemic-hit airline’s current market value of US$686 million.

This move followed a week after the airline company applied for a digital banking licence in Malaysia.

In response to the acquisition, MIDF Research analyst Ummar Fitri said this begets the question of overpaying the business or opportunistic investment.

“True to their digital aspirations, AirAsia has taken another bold step to realise their vision of digital travel and lifestyle company, diversifying its earning away from their traditional airline business,” he said in a note last Thursday.

He added timing-wise, the Covid-19 pandemic has fuelled the company’s zeal to pursue its digital routes.

“To address the elephant in the room, we believe the digital segment is still in its infancy and altogether a different ball game as opposed to AirAsia’s traditional business airlines.

“Our thinking is that the digital segment of AirAsia is not self-sustaining yet and still at the scale that cannot sustain the whole group; especially in near-term,” he said.

He added as of now, survival of the low-cost aviation group is dependent on the success of the group fundraising activities and revving back its core business, airlines.

“Without successfully addressing the immediate needs of its airline business, AirAsia is still going to be in a precarious state, foreseeably longer than calendar year 2021 to 2022,” he said.

MIDF maintains its earnings forecast for the group and the ‘Sell’ rating with a target price to 44 sen, pegged by four times its enterprise value to Ebitda for the financial year 2022 forecast.

Public Investment Bank Bhd is also positive on the Thai deal but notes the digital business is still at its infancy stage and unable to offset the pandemic’s crippling effect on its aviation business.

“With no end in sight for travel restriction and rising fuel prices, we maintain our ‘Underperform’ call on AirAsia with unchanged target price at 19 sen,” they wrote.

In an exchange filing yesterday, AirAsia proposed to undertake a renounceable rights issue of up to RM1.02 billion in nominal value of seven-year redeemable convertible unsecured Islamic debt securities (RCUIDS) with a nominal value of 75 sen each on the basis of two RCUIDS with one free detachable warrant for every six ordinary shares held.

The entitlement date will be determined by the company’s board and announced later.

The money raised will be used for working capital, pay fuel hedging contract and aircraft lease, maintenance and finance its digital arm, the filing noted.