Domestic First. International Second

• For trading-oriented investors, we recommend a pair trade of Long ComfortDelGro (SGX:C52) and Short AirAsia Group (AAGB:MK), presenting a total return of 75%.
• We believe the faster recovery in land transport vs aviation will catalyse the divergence in share price performance.
• AirAsia Group has proposed a placement to raise RM454.5m. That said, AirAsia Group may need to tap equity and debt markets again in the future, given its poor earnings outlook.
• In contrast, land transport operator ComfortDelGro is set to recover in FY21E onwards, driven by the gradual recovery in ridership and easing of social distancing measures domestically.

Proposed Private Placement

• AirAsia Group (AAGB:MK; SELL, Target price: RM0.31) proposed a placement at RM0.68/placement share to raise RM454.4m. However, AirAsia Group concedes that the proceeds will not fully address its current financial concerns and that it may need to tap equity/debt markets again.
• Our analyst Yin Shao Yang opines that the indicative issue price is not cheap at 1.9x end 3QFY20 book value of equity per share (BVPS), coupled with its current gloomy operating environment. The P/B multiple may expand as losses deepen, given mass inter-state travel is now banned in Malaysia.

Recovery Dependent on Vaccine Timeline

• According to IATA, global passenger numbers will not return to pre-COVID-19 levels until 2024, a year later than what was previously forecasted. Meanwhile, AirAsia Group’s key operating countries (Malaysia, Thailand, Indonesia, India) would likely form herd immunity only after 4Q21.
• Our macro team expects herd immunity to occur in 4Q21 for Malaysia, Thailand and 1H22 in Indonesia. Meanwhile analytics company Airfinity expects India to achieve herd immunity by Feb 2023. Until then, AirAsia Group’s earnings per share and BVPS may be diluted with more debt and/ rights issues. This presents a downside of 57% to the current AirAsia Group share price.

Land Transport Should Recover First

• ComfortDelGro is trading at 22.8x FY21E P/E with 2.6% FY21E yield (payout ratio of 60% vs 5-year mean of 73%). The current ComfortDelGro share price implies 1.3x FY21E P/B, which is 2 SD below historical mean.

Source: Maybank Kim Eng Research - 3 Feb 2021