KUALA LUMPUR (Jan 22): AirAsia Group Bhd's proposal to undertake a private placement of up to 20% of its existing 3.34 billion shares is a step in the right direction for the company, said MIDF Amanah Investment Bank Bhd.

In a note today, it said the exercise will only serve as a stopgap measure to partially address the company's financial concerns.

The management had earlier indicated a conservative estimate of group capital needs of between RM2 billion and RM2.5 billion to tide it over comfortably until the end of financial year 2021 (FY21).

"We concur with the management's estimates as we project the group's current cash and equivalents stood at around RM1.2 billion; already a very optimistic projection that includes cash balances as of nine months of 2020 (9M20) and proceeds from recent partial stake sale in AirAsia India.

"This represents about 5.5 times monthly burn rate (estimated at RM220 million) as per its 9M20 earnings result," the investment bank said.

"Nevertheless, at the very least, the exercise provides a brief respite and breathing room for the company as the management contemplates on a longer and more permanent solutions to the group's financial woes."

On second round funding, MIDF has posited that the group may need to go through a couple rounds of fundraising exercises, exposing its current shareholders to more potential dilution in the future.

The worrying level of infections in Malaysia and other AirAsia Group's key markets is alarming and dampening the recovery trajectory this year, it added.

MIDF has maintained "sell" call for the stock with a revised target price (TP) of 37 sen.

Yesterday, AirAsia Group announced plans to undertake a private placement of up to 20% of its existing 3.34 billion shares to raise approximately RM454.51 million.

The budget carrier said the exercise would enhance its financial position with a marginal increase in net assets and improvement in net gearing.

It said gross proceeds would be used for fuel hedging settlement, aircraft lease and maintenance payments, and general working capital expenses, among others.

Meanwhile, Maybank Investment Bank Bhd has maintained its earlier estimates for AirAsia as it is unsure how well this private placement will be received.

"In our view, the indicative issue price is not cheap given the still poor earnings outlook," it said, adding that it has maintained the "sell" call for the company with a TP of 31 sen.

CGS-CIMB Securities Sdn Bhd expects a RM1 billion rights issue sometime this year assuming three billion new shares at 35 sen each.

Moving forward, Kenanga Investment Bank Bhd said AirAsia Group is looking forward to the gradual reopening of domestic travel and international borders in recognition that air transport provides the connectivity that is essential for the resumption of economic activities.

"Over the medium term, we expect AirAsia to face a tough operating environment already derailed by widespread travel disruptions due to Covid-19, and hits from lower load factor," it said.

Kenanga has maintained its "underperform" call with a TP of 38 sen.