How Valuable Is AirAsia Berhad’s Business?

AirAsia Berhad (KLSE: 5099.KL) is one of the best-performing blue chip stocks within Malaysia’s Kuala Lumpur Stock Exchange in 2016 thus far. The low-cost airline has seen its shares surge by nearly 90% in price alone since the start of the year.

The rally was likely driven by a rebound in AirAsia’s profitability on the back of foreign exchange gains and a turnaround in the operations of its associates.

There may be even more good news on the horizon. AirAsia’s chief executive, Tan Sri Tony Fernandes, said yesterday that the airline had received a US$1 billion offer for its aircraft leasing business unit. For perspective on the size of the deal, AirAsia’s market capitalisation currently stands at RM6.7 billion (which is around US$1.6 billion).

AirAsia’s aircraft leasing unit in question, Asia Aviation Capital Ltd, has 43 A320’s in its fleet as of end-March 2016. The identity of the bidder for Asia Aviation Capital is currently unknown.

Fernandes has commented that the aircraft leasing unit “is a very powerful cash generator” and that there is also “tremendous value and cash equation there.”

AirAsia Berhad has also recently indicated that it might be looking to consolidate its business, instead of holding many minority stakes in its associates. If the company is serious about doing so, it might need more capital to achieve that goal.

The offer for Asia Aviation Capital might thus be a great option for AirAsia to raise some funds to consolidate its business. But, it is too early to speculate on how AirAsia would want to restructure its operations to better position itself for the future.

The company is currently trading at 1.4 times its tangible book value, and just 5 times its earnings.

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The information provided is for general information purposes only and is not intended to be personalised investment or financial advice. Motley Fool Singapore writer Stanley Lim owns shares in AirAsia Berhad.