Investors eye bumper dividend as AirAsia plans to sell aircraft leasing business

PETALING JAYA: Shares in AirAsia Bhd climbed to its highest level in more than a year on hopes the low cost airline will pay out a bumper dividend from the impending sale of its aircraft leasing business.

CIMB Research expects 96 sen a share payout assuming the deal goes through.

“Post-sale, gearing levels would fall, and the risks arising from the associate airlines would be shared with the new majority owner of AAC,” it said in a note yesterday.

“We expect 96 sen per share in special dividends to be declared post-Asia Aviation Capital’s (AAC) disposal,” it said.

Shares in AirAsia rose two sen yesterday to close at RM2.67. CIMB Research yesterday raised its target price for the stock to RM4.15.

This values the airline at nine times its projected earnings in 2017 and adding in the expected special dividend.

It has been reported that the low cost carrier was in the process of evaluating the proposed sale of AAC.

Group chief executive officer Tan Sri Tony Fernandes said AirAsia had appointed three banks to conduct the sale and there had been significant interest in AAC with a ready offer in hand valued at about US$1bil.

AAC is AirAsia’s wholly-owned leasing arm that leases aircraft to associate airlines in Thailand, Indonesia, the Philippines, India and Japan.

At the point of sale, AAC will have a portfolio of about 70 A320 planes, with aircraft and their associated debt novated from Airasia.

CIMB Research said the best offer on the table so far values AAC’s equity at US$1bil, although it believed that AirAsia was attempting to push the valuation even higher.

“The latter was calculated based on the market value of AAC’s expected portfolio of 70 aircraft, with the valuation boosted, in our view, by AirAsia’s large and attractively-priced order book with Airbus, which AirAsia has promised to share with the future AAC owner,” it added.

The exact proportion of AAC to be sold has yet to be decided by AirAsia, but a buyer has offered to purchase an 80% stake for US$800mil.

CIMB Research said Airasia might sell a smaller stake if it could get a higher valuation. “We suspect that the key criteria is the amount the two founders need to receive in special dividends to settle the RM1bil they would borrow to pay for the upcoming placement of 559 million new shares at RM1.80 each,” it said.

The research house said after the placement, the two founders would have a combined 32.4% stake in AirAsia.

“This means they will need AirAsia to pay at least RM3.1bil in special dividends (RM1bil/32.4%) to settle their loan. The US$800mil proceeds from potential sale of 80% stake in AAC (or RM3.2bil at RM4 to US$1) neatly matches the amount the founders need.

“This is the reason we think the entire proceeds will be paid as special dividends, representing 96 sen per share on enlarged post-placement base of 3,342 million shares,” CIMB Research said.

The research house estimated that RM1.5bil-RM1.7bil in debts associated with the leasing business would be deconsolidated, reducing net gearing to below one time.

Also, the future funding of loss-making associates would be shared with the new AAC owner, since the associates will pay aircraft rents directly to AAC.