Wednesday, July 08, 2020

Commentary: AirAsia & BTM Resources


AIRASIA


So, AirAsia announced huge losses. So what was the surprise? Was the quantum too severe or beyond expectations? No, it was expected. 

What about the pseudo PN17? You mean the analysts were not aware that was an automatic thing? The financial trigger points are all there in front of us.

Rights issue, in many cases, would be viewed negatively. Looking at AirAsia, at these levels, shareholders would want the most minimal dilution. Bearing in mind less than 6 months ago the shares were at RM1.75. Today's closing 70.5 sen. 

EVERY SINGLE AIRLINE needs help. Pray tell one that doesn't!

The pandemic coupled with the oil glut are black swans of the highest order. Governments are the backbone of it all to bring about a recovery in the affected areas where possible.

We do not produce many global brands or even regional brands of significance. Much of that stems from the fact that our population is less than 30m. It is so much harder to scale up in every single business. It took Mamee Double-decker years to champion its way regionally. The Malaysian government must look away from politics and extend swift help to companies that are "competent" and has regional or global branding leverage. ...Whether you like the CEO/owner or not.

What was MAS extended a lifeline so quick? Why was AirAsia left to be strutting its stuff regionally to seek financial help?

Last heard Danajamin might be providing up to RM3 billion to AirAsia. Hope that is more than a rumour.

As AirAsia, you are squeezed. You have to come up with a cash infusion. A government agency led loan may be the best option if the terms are not so onerous. A rights issue is less dilutive and may help existing shareholders keep more of their future equity at current prices.

To hear that AirAsia may have to issue new shares to Singapore (government investing firms) or SK Group (South Korea) is so here breaking. That we have to sell stakes to another country who really appreciates the business and leverage that it offers, when you find no takers locally.

AirAsia is easily one of the top managed budget airlines, and an Asian regional champ. If you were to invest now into an airline at present prices, with the surrounding climate, it has to be AirAsia.

Yesterday ZERO Covid cases in Malaysia. AirAsia is flying domestically. Much of Asia is doing so much better in grasping with the pandemic, hence earlier recovery and travelling around Asia than any other substantive parts of the world.

the auditor noted that the recent progressive
uplifting of restrictions on interstate travel and domestic
tourism activities within AAGB’s operating countries have
led to positive developments for its business operations.
Passenger seat booking trends, flight frequencies and load
factors are gradually improving to cater to increasing
demand. The auditor added that the AAGB’s financial
statements have been prepared on a going concern basis. Its
validity will depend on factors such as successful recovery
from the pandemic and favourable outcome of the group’s
discussions with financial institutions to obtain the required
funding for its future plans. 
now. 

The Group intends to raise
RM1.4bn in capital to strengthen its equity base and for
liquidity. Other than raising capital, the group is also
implementing cost saving measures across the board with at
least 50% pay cuts, reduction in fuel volume, restructuring
of hedging contracts, deferment of aircraft deliveries as well
as deferral of lease expenses.
We maintain our HOLD call and target price (TP) of RM0.80,
based on 1.0x price/book value (P/BV), given that the easing
of lockdown measures, pick-up in travel demand as well as
resumption of AAGB’s flights across all domestic markets
indicates signs of recovery. Challenges remain though with
key risks including slower-than-expected travel demand, a
second wave of infections and increased volatility in fuel
prices.
(AllianceDBS Research note)

I am in total agreement with this research note (my 1-3 month target is close to 90 sen) and think that the other research houses are too timid in their evaluation and prognosis. 

Found another research house with balls.

Look at the reasons for the losses. They have unwound most of the oil price hedges which caused losses. Moving forward they would no longer have that burden. I mean I do not get to drill down on the figures but no rights issue should be done below book value.




BTM Resources



Finally a more credible looking development for BTM Resources.


The Edge KUALA LUMPUR (July 2): Sawmill operator BTM Resources Bhd said its wholly-owned subsidiary BTM Biomass Products Sdn Bhd has obtained approval from the Sustainable Energy Development Authority (SEDA) to build and operate a renewable energy electrical power plant.
The electrical energy power plant (EEPP) will have the capacity to supply 10 mega-watt (MW) per hour of electricity to Tenaga Nasional Bhd, and is located in Chukai, Terengganu, it said in a bourse filing.
Meanwhile, BTM said it has received the relevant feed-in tariff (FIT) approval certificate today and the approval granted is for a period of 21 years with the commencement date set at no later than Jan 23, 2023.
“The expected date of signing the power purchase agreement (PPA) with Tenaga Nasional Bhd is October 2020 at a fixed tariff rate of RM0.3486 per kWh for 21 years,” it added.
In terms of the construction of the EEPP, BTM said it is targeted to commence in June 2021 and is expected to be completed in December 2022.







Mind you, BTM Resources has only 141 million shares, and at current prices its market cap is at ridiculous RM24m. While its financial performance for the past few quarters have been less than desired, its manageable losses. Net asset per share stood at 15 sen. I think once the private placement has taken effect the shares will be more than interesting. Obviously the placement was to raise funds for the above venture. I mean, what's the downside to RM24m market cap???







1 comment:

k said...

Ok, that was quite a quick take on AA’s fortunes.
Good that you’re already giving your thoughts so soon after the fact...
I foresee some turbulence ahead.

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