Case Study of JHM Consolidation Berhad (0127)

By Stella Goh – Market Data Analyst | 22 January 2020

Overview 

JHM Consolidation Berhad (JHM) is an established Malaysia-based company founded in 2005 and headquartered in Bayan Lepas, Malaysia. JHM is a one stop solution provider for high precision, high speed stamping, including tooling design, fabrication as well as production of Micro-Electronic Components (MECs).  

JHM was listed in ACE Market in Year 2006 and is seeking to transfer their listing quotation for entire issued share capital to Main Market of Bursa Malaysia by third quarter of this year. (The Star Property, 1Jan2020). Geographically, the company exports its products to People’s Republic of China, United States of America, United Kingdom and Singapore. 

There are 6 wholly subsidiaries of JHM such as Morrissey Technology Sdn Bhd (MTSB), Morrissey Assembly Solutions Sdn Bhd (MASSB), JH Morrissey Sdn Bhd (JMSB), Morrissey Mettalurgy Manufacturing Sdn Bhd (MMMSB), Morrissey Integrated Dynamics Sdn Bhd (MIDSB) and Mace Instrumentation Sdn Bhd (MISB). 

Business Model 

JHM principally engaged in the manufacturing of precision miniature engineering metal parts & components, assembly of electronic components by using surface mount technology (SMT), assembly of automotive rear lighting for well-known car manufacturers in North America countries as well as in Japan, and production on high brightness of emitting diodes (HB LED) application to support 3D effects. 

The group also involved in the broad portfolio of innovative equipment, services and niche products for aerospace. They design, SMT production and assembly of interior lighting for aerospace. 

Financial Review 

Based on the past 5 financial years of revenue chart above, the group’s revenue grew year-on-year (y-o-y) from FY2014 (+3.45%), FY2015 (+82.86%), FY2016 (+47.51%), FY2017 (+27.03%) to FY2018 (+7.57%). On a CAGR basis, JHM has grown 30.69% based on 5 years. The increase in revenue was mainly attributed to 71% for Automotive Segment Industry, 28% for Industrial Products and 1% for others. 

JHM has successfully recorded RM3.965 million increase in gross profit, translating to a growth of 6.99% from RM56.7 million in FY2017 to RM60.7 million in FY2018. Based on five years CAGR basis, the group has grown 48.94%. The increase in gross profit was due to the contribution from Mace instrumentation Sdn Bhd (MISB), growing of automotive sectors, results from Mechanical Business Unit and unrealized gain on foreign exchange of RM2.22 million in FY2018.    

The Profit After Tax (PAT) of JHM rose 19.60% from RM29.6 million in FY2017 to a new high of RM35.4 million in FY2018. On CAGR basis, the Profit After Tax (PAT) grew by 77.30% was in line with the growth of revenue and gross profit.

Cash Flow Statement 

The net cash from operating activities has obtained a positive cash flow of RM26.0 million in FY2018 compared to RM17.1 million in FY2017 indicates that the company is healthy and have enough cash used for business expansion. 

The net cash from investing activities in FY2018 is (-RM12.7 million) was mainly due to purchase of Property, Plant and Equipment (PPE) (RM8.5 million), net cash outflow from acquisition of a subsidiary (RM3.9 million), acquisition of non-controlling interests (RM1.5 million) and placement of fixed deposits (RM0.158 million). The negative cash flow indicates that the company is investing more in its business to grow. 

The net cash from financing activities in FY2018 is (-RM10.8 million) was mainly due to the payment of finance lease (RM15.7 million) and dividends paid (RM8.4 million).  

Is the company able to pay back its liabilities?  

Based on my liquidity ratio calculation, JHM has a current ratio of 2.858 times in FY2018 indicating that the company does not face any liquidity issue as it is capable of paying back its liabilities if any unforeseeable circumstances occur. JHM is able to do so by using current assets such as inventories, trade receivables, other receivables, deposits, prepayments, tax recoverable, cash and bank balances amounted to RM182.7 million. 

Prospect and Challenges 

JHM was buying a factory in Kedah for RM16.6 million by cash and the group have signed the sale and purchase agreement (SPA) with Bernas Wirama Sdn Bhd. The acquisition will enable JHM to expand their production floor in order to increase their production capacity. The board views it as a strategic move for JHM group to own the property, to improve and enhance the operational efficiencies in long-term. (The Edge, 2 April 2019).  

On 26 March 2019, JHM has entered a two years Memorandum of Understanding (MoU) with Universal Alloy Corporation Europe (UACE) in order to create an efficient and effective supply chain for machined sub-assembled aerospace components and products. UACE will provides technical and manufacturing capabilities insertion programs as and when needed by JHM. They understand that the MoU is one of four signed as part of strategic objectives of Malaysia’ National Policy on Industry 4.0 for Industry 4WRD. They noted that there was also another MoU signed between JHM and MTC AeroSystems of Hungary to supply software systems for JHM. (The Edge, 28 March 2019).  

Rating System

Return on Equity (ROE) = Average 

Revenue [5 years CAGR] = Good 

Net Earnings [5 years CAGR] = Excellent 

Basic Earnings per Share (EPS) [5 years CAGR] = Excellent 

Interest Coverage = Good 

My Insight 

Based on my calculation on Discounted Earnings Model, JHM Consolidation Berhad has a fair value of RM4.372. The current market value of JHM is RM1.68 which is undervalued (Based on 20Jan2020). JHM has a beta of 1.659 (500 days) indicates that the company is more volatile than current market, which means the investors / traders are actively trading in this stock. While for short-term trader, they may face higher risk. Based on my computation of Compound Annual Growth Rate (CAGR), JHM has an expected market return of 5.54%. 

In conclusion, JHM Consolidation Berhad has achieved an outstanding performance in FY2018 as the revenue, gross profit and net profit after tax (PAT) have been increased years by years from FY2014 to FY2018. JHM’s prospect remains bright will be supported by vibrant automotive segment, and by industrial segments such as gradual and steady take-off strategic aerospace segment, especially after the successful qualification of initial sample parts. I believe the company can grow very well in the future as the Industry 4.0 will need a lot of high-end equipment to test and automate. 

Disclaimers 

The research information and financial opinions expressed by ShareInvestor.com website is for information and education purpose only. We do not make any recommendation for the intention of trading purpose or advice. Although best efforts are made to ensure that all information is accurate and up to date, occasionally unintended errors and misprints may occur. You should not rely upon the material and information on this website. We will not be liable for any false, inaccurate, incomplete information and losses suffered from your own action. You need to do your research to make your own investment decision wisely. 

Case Study of GHL Systems Berhad (0021)

By Stella Goh – Market Data Analyst | 15 January 2020


Overview

GHL Systems Berhad is an investment holding company founded in Year 1994 and headquartered in Kuala Lumpur. GHLSYS was primarily involved as a leading payment service provider in Asia Pacific, specializing in payment related solutions and services for banks, merchants, telco, billers and other e-commerce players such as oil & gas, retail, transportation companies etc.

GHLSYS was listed in ACE Market on April 2003 and successfully transformed into Main Market of Bursa Malaysia on February 2007. With more than 20 years of experience in e-payment industry, the group successfully built a solid reputation in revolutionizing the ASEAN payment industry. They transformed the manual payment methods into a complete digital approach by simplifying the distribution payment as well as collection catering to all merchants in the region.

Presently, GHLSYS has business operations spanning across Malaysia, Philippines, Cambodia, Indonesia, Singapore and Australia.



Business Model

GHL Systems Berhad principally involved in the business segments such as shared services, solution services and transaction payment acquisitions.

GHLSYS provides a full range of solutions and services to banks and merchants affiliated to the acceptance of payment devices on sale, maintenance and rental basis. For examples, POS terminals and other payment acceptance devices which can perform electronic payments for credit cards, debit cards, e-Wallet, loyalty points capture, redemption transactions, loan repayment and other bank or merchant specific requirements.

The group also engaged in developing and selling in-house software and hardware programs, implementation services which enables the banks and merchants acquire a secure payment network and other related services such as installation, training and maintenance. They are also accredited by reputable organizations and governing bodies such as VISA, MasterCard, JCB, UPI, Alipay, MEPS, SIRIM, and Line Encryption Working Group.

Financial Review


Based on the past 5 financial years of revenue chart above, the group’s revenue grew years-on-years (y-o-y) from FY2014 (+157.58%), FY2015 (+28.16%), FY2016 (+16.34%), FY2017 (+3.15%) to FY2018 (+17.89%). On CAGR basis, GHLSYS has grown 36.11% based on 5 years. The increase in revenue was mainly attributed to 61% for Transaction Payment Acquisition (TPA), 34.2% for Shared Services and 4.8% for Solution Services.


GHL Systems Berhad has successfully recorded a considerable RM21,150 million increase in gross profit, translating to a double-digit growth of 20% from RM105.7 million in FY2017 to RM126.9 million in FY2018. Based on 5 years CAGR basis, the group has grown 25.75%. The increase in gross profit was mainly due to the increase in sales of EDC terminals in Malaysia and Thailand, higher rental fees and transaction fees collected, and better performance by geography from Thailand and Philippines, particularly in Transaction Payment Acquisition (TPA) segments.


The Net Profit After Tax (PAT) of GHLSYS rose 19.89% from RM20.5 million in FY2017 to a new high of RM24.6 million in FY2018. On a CAGR basis, the Profit After Tax (PAT) grew by 36.62% was in line with the growth of revenue and gross profit.

Cash Flow Statement

The net cash from operating activities has obtained a cash flow of RM2.5 million in FY2018 which is lesser than FY2017 amounted to RM56.4 million. Even though the cash flow is lesser in FY2018 compared to previous years, the company still have enough cash used for business expansion.

The net cash from investing activities in FY2018 is (-RM52.7 million) was mainly due to the purchase of Property, Plant & Equipment (PPE) (RM22.6 million), purchases of intangible assets (RM0.021 million), acquisition of subsidiaries (34.4 million), acquisition of additional interests in other investment (RM2.1 million), and placement in deposit pledged (RM4.5 million). The negative cash flow indicates that the firm is investing more in its business to grow.

The net cash from financing activities in FY2018 has obtained a positive figure of RM82.7 million was attributed to drawdown of term loans (RM79.9 million), drawdown of hire purchase (RM6.6 million) and proceeds received (Executive Share Scheme exercised, private placement and resale of treasury shares) (RM85.7 million). GHLSYS had also need to pay for term loans, Islamic facility, hire purchase creditors and banker’s acceptance with a total amounting to RM89.5 million.

Does the company able to pay back its liabilities? Based on my liquidity ratio calculation, GHLSYS has a current ratio of 1.096 times in FY2018 indicates that the company do not face any liquidity issue as they are capable to pay back its liabilities if any unforeseeable circumstances occurred by using current assets such as inventories, trade & receivables, current tax assets, cash and bank balances amounted to RM371.4 million.

Prospect and Challenges

GHLSYS is partnered with Mastercard, has launched a tokenized e-payments solution that offer simple, more secure and seamless digital payment experiences for consumers. For examples, the Mastercard Digital Enablement Services (MDES) for Merchants (M4M) is offered by GHLSYS’s fintech arm, eGHL (first payment service provider in Southeast Asia) for online and in apps transactions. The MDES will be used to protect user’s card information and sensitive accounts numbers, with a digital token that is unique to only the customer and the merchant. (Source: TheEdge, 6Jan2020)

GHLSYS plans to roll out 10,000 of merchant acquisition for Bank Negara Indonesia (BNI) and becomes e-Wallets provider in Indonesia starting in first quarter of 2020 (1Q2020). The groups also have started pilot program for money lending business in Malaysia and Thailand after they received the money lending license in August 2019, which will allow them offer financing to its merchant base. (Source: TheEdge, 6Dec2019).

GHLSYS via its 100% subsidiary GHL (Thailand) Co Ltd together with Thanachart Bank Public Company Limited have jointly launched smart payment terminals in Thailand as they see big opportunities to bring cashless payments to a wider range of business. The payment acceptance options in Thanachart banks include both PromptPay and credit / debit cards which follows the Thai QR Code Specification and WMVCo standards for Payment Systems. These services are expected help to reduce dependency on cash, as more business are gearing towards new e-payment methods. (TheEdge, 24July2019).


Rating System

Return on Equity (ROE) = Average

Revenue [5 years CAGR] = Good

Net Earnings [5 years CAGR] = Good

Basic Earnings per Share (EPS) [5 years CAGR] = Good

Interest Coverage = Good

My Insight

Based on my calculation on Discounted Earnings Model, GHL Systems Berhad has a fair value of RM4.291. The current market value of GHLSYS is RM1.64 which is undervalued. (Based on 13 Jan 2020). GHLSYS has a beta of 0.579 (500 days) indicates that the company is less volatile than current market, which also indicates investors / traders are not actively trading in this stock. While for short-term trader, they may face lower risk. Based on my computation of Compound Annual Growth Rate (CAGR), GHLSYS has an expected market return of 5.51%. GHLSYS has a Return of Equity (ROE) of 6.042%, which is slightly decreased from 7.459% from last year which means slightly unhealthy.

In conclusion, GHL Systems Berhad has achieved an outstanding performance in FY2018 as the revenue, gross profit and net profit after tax (PAT) have been increased years by years from FY2014 to FY2018. GHLSYS prospects remain bright by looking at the growth of cashless payment such as Mastercard Digital Enablement Services (MDES) and smart payment terminals. I believe the company can grow very well in the future as the electronic and digital payments are on the rise around the globe.

However, investors or traders must be cautious that the decreasing of Return on Equity (ROE) of the company indicates that the management’s effectiveness in utilization resources to generate return, for each dollar invested in the company, is decreasing.

Disclaimers

The research information and financial opinions expressed by ShareInvestor.com website is for information and education purpose only. We do not make any recommendation for the intention of trading purpose or advice. Although best efforts are made to ensure that all information is accurate and up to date, occasionally unintended errors and misprints may occur. You should not rely upon the material and information on this website. We will not be liable for any false, inaccurate, incomplete information and losses suffered from your own action. You need to do your research to make your own investment decision wisely.

Case Study of Frontken Corporation Berhad (0128)

By Stella Goh – Market Data Analyst | 9 January 2020


Overview 

Frontken Corporation Berhad is an established Malaysia-based investment holding and provision management services company founded in the Year 1996, primarily involved as a leading service provider of surface and mechanical engineering in the Asia Pacific region.  

FROTNKN was listed on ACE Market in the Year 2006 and successfully transformed into Main Market of Bursa Malaysia on 19 November 2008. Most of the key players of FRONTKN in oil and gas (O&G), petrochemical, power generation, semiconductor and electronics manufacturing industries come from Singapore market, while the group also has a presence in Malaysia, Philippines, Indonesia, Thailand, Vietnam and Japan.  


Business Model 

Frontken Corporation Berhad was principally involved in the business by providing various specialised engineering services such as thermal spray coating, cold build coating, plating and conversion coating, specialised welding, precision cleaning abrasive blasting, machining and grinding. 

Through the surface technologies, the group provides components protection, lifetime expansion, performance and efficiency improvement to customer’s equipment. FRONTKN also provides assessment, assembly, balancing, recovery and upgrading work on industrial rotating or non-rotating equipment such as pumps, turbines, compressors, diesel engines, generators and motors. 


Financial Review 


Based on the past 5 financial years of revenue chart above, the group has successfully recorded a considerable RM30,637 million increase in revenue, translating to a growth of 10.33% from RM296.6 million in FY2017 to RM327.2 million in FY2018. Based on 5 years CAGR basis, the group has grown 11.41%. The increase in revenue was mainly due to the growth of semiconductor-related business with strong support from its customers and improvement in engineering business from their subsidiaries in Malaysia, Singapore and Taiwan. 


Frontken Corporation Berhad has successfully achieved a tremendous high record of gross profit by 20.75% from RM104.8 million in FY2017 to RM126.6 million in FY2018. Based on the past 5 years of CAGR basis, the gross profit has grown 21.02%. The growth of gross profit was mainly driven by stronger demand in the cloud computing business, demand for a wafer of LED chips, ramp up production of advanced node chip and the better performance from their oil and gas (O&G) division. 


The Profit after Tax (PAT) of FRONTKN rose 56.56% from RM36.4 million in FY2017 to a new high of RM57 million in FY2018. On a CAGR basis, the Profit After Tax (PAT) grew by 161.67% was in line with the growth of revenue and gross profit. 

Cash Flow Statements 

The group has generated net cash from operating activities of RM63.3 million in FY2018 as compared to RM69 million in the previous year. The decrease in net cash from operating activities was mainly due to the increase in working capital requirements and taxes paid for the group’s ongoing operations. Even though the cash flow is lesser in FY2018, the company still has enough cash used for business expansion.  

The net cash from investing activities in FY2018 is (-RM7.1 million) was mainly due to the purchase of property, plant and equipment (PPE) (RM7.5 million) and additional investment or acquisition of subsidiaries (RM7.1 million). The negative cash flow indicates that the firm is investing more in its business to grow.  

The net cash from financing activities in FY2018 is in the negative zone (-RM27.8 million) was primarily due to repayment of term loans (RM16.7 million). The others factor including interest payment (RM0.568 million), the dividend issued by the company (RM7.3 million), a dividend paid by the subsidiary to non-controlling interests party (RM2.6 million) and payment of hire purchase payables (RM0.545 million).  

Based on liquidity ratio calculation, FRONTKN has a current ratio of 2.8303 times in FY2018 compared to 2.2225 times in FY2017 indicates that the company do not face any liquidity issue as they are capable to pay back its liabilities if any unforeseeable circumstances occurred by using current assets such as inventories, trade receivables, deposits, prepaid expenses, amount owing by subsidiaries, amount owing by associate, current tax assets, short-term investments, fixed deposits with licensed banks, cash and bank balances amounted to RM277.6 million. 

Prospect and Challenges  

According to the chairman and chief executive officer (CEO) Nicholas Ng, the group is seeing more opportunities in oil and gas (O&G) sector, especially with more activities in Pengerang, Johor where the Petronas Refinery and Petronas Chemical Integrated Development (Rapid) project is developed. (Source: TheEdge, 25 March 2019) 

Through Research & Development, the group will innovate more efficient ways in advanced materials and surface engineering technology to produce new and improved coatings which will use in protection against material degradation and to improve the productivity of industrial processes. (Source: Annual Report 2018). The demand for semiconductor will accelerate further once 5G is rolled out globally. (Source: Quarterly Report, 20 September 2019). 

FRONTKN also plans to strengthen its foothold in the Chinese market where it sees huge opportunities and probably involves in setting up new facilities, instead of servicing China-based clients from its existing Taiwan and Singapore facilities. (Source: TheEdge, 25 March 2019) 

The group also will take some time to identify a strategic location for the new facility to be closer to most major wafer fabrication equipment sprawled across the country. By 2020, the group should be able to cater to its customers’ wafer fabrication process node of up to five nanometers. (Source: TheEdge, 25 March 2019) 

Rating System

Return on Equity (ROE) = Average 

Revenue [6 years CAGR] = Average 

Net Earnings [6 years CAGR] = Excellent 

Basic Earnings per Share (EPS) [6 years CAGR] = Excellent 

Interest Coverage = Excellent 

My Insight

Based on my calculation on Discounted Earnings Model, Frontken Corporation Berhad has a fair value of RM7.72. The current market value of FRONTKN is RM2.38 which is undervalued. (Based on 6Jan2020). FRONTKN has a beta of 1.229 (500 days) indicates that the company is more volatile than the current market, which also indicates investors / traders are actively trading in this stock. While for short-term trader, they may face a higher risk. Based on my computation of Compound Annual Growth Rate (CAGR), FRONTKN has an expected market return of 5.59%.  FRONTKN has also achieved a double-digit of Return on Equity (ROE) which is 16.08% in FY2018 considered as healthy as compared to 10.60% in FY2017. 

In conclusion, Frontken Corporation Berhad has achieved outstanding performance in FY2018 as the revenue, gross profit and net profit achieved a new high over the past year. FRONTKN prospect remains bright by looking at the growth of semiconductor and Oil & Gas division. I believe the company can grow very well in future as the Internet of Things (IoT) and Industry 4.0 will need much high-end equipment to test and automate. 

Disclaimers 

The research information and financial opinions expressed byShareInvestor.com website are for information and education purpose only. We do not make any recommendation for the intention of trading purpose or advice. Although best efforts are made to ensure that all information is accurate and up to date, occasionally unintended errors and misprints may occur. You should not rely upon the material and information on this website. We will not be liable for any false, inaccurate, incomplete information and losses suffered from your own action. It would be best if you did your research to make your own investment decision wisely. 

Case Study of Airasia Group Berhad (5099)

By Stella Goh – Market Data Analyst | 2 January 2020

Overview

AirAsia Group Berhad is an established Malaysia-based investment holding company founded in the Year 1993 based in Kuala Lumpur, which primarily involved as a multinational airline group with the world’s lowest cost-carrier in Asia.

AIRASIA was listed in Main Market of Bursa Malaysia in November 2004. The group has connected people and place across 388 routes, 104 of which are categorized as unique routes across the Asia Pacific. In 2018, the groups include AirAsia Group Berhad (AirAsia Malaysia, AirAsia Indonesia, AirAsia Philippines), AirAsia Thailand, AirAsia India and AirAsia Japan reinforced its leadership position with two remarkable milestones. For examples, flying over 500 million guests and grew from 2 aircraft in FY2001 to 226 aircraft as the end of FY2018.

Business Model

AirAsia Group Berhad’s entire business model centres at low-cost philosophy which requires its operations to be a lean, simple, and efficient.

AIRASIA focuses on high Aircraft Utilisation means the group has high frequency and high turnaround of flights, both bring customers convenience and greater cost efficiencies as the turnaround of 25 minutes is the fastest in the region.

AIRASIA provides low fare but no frills mean there is no frequent flyer miles or airport lounges in exchange for low fares. Guests have their choices to pay for in-flight meals, snacks and drinks.

AIRASIA also offers internet sales or by call centres. The bulk of sales can be done via the airline’s website (www.airasia.com), whereby the fares are paid by using credit cards, debit cards or via online banking. While for call centres, customers can purchase tickets via telephone. Both methods are the most effective distribution channel which can be made customers more convenience.

The group also has actively diversified their business into non-airline digital-based businesses such as Big Loyalty, BigPay, travel360.com, ROKKI, OURSHOP and RedCargo Logistics and RedBeat Ventures (RBV).

Financial Review


Based on past 5 financial years of revenue chart above, the group’s revenue grew years-on-years (y-oy) from FY2014 (+5.95%), FY2015 (+16.28%), FY2016 (+8.71%), FY2017 (+41.83%) to FY2018 (+9.56%). On a CAGR basis, AIRASIA has grown 15.79% based on 5 years. The increase in revenue was mainly driven by an 18% increase in capacity which enables a 14% increase in a number of guests carried to 44.44 million. Although their enhanced capacity led to slightly decrease in average fare from RM176 in FY2017 to RM173 in FY2018, it has compensated by 7% increases in ancillary revenue to total RM2.06 billion.

AirAsia Group Berhad has recorded a decreased gross profit from RM1.9 billion in FY2017 to RM805.1 million in FY2018 equivalents to (-56.55%). The huge decrease in gross profit was mainly caused by the increased of fuel and one-off expenses as well as changed in accounting from owning to leasing aircraft towards the second half of FY2018. Due to hike in fuel price, and 3% dip in average stage length of flights, their overall cost per available seat kilometre (CASK) including fuel increased by 12% to 14.80 Sen.

The Net Profit After Tax (PAT) of AIRASIA has successfully recorded a considerable RM124.02 million increase in Profit After Tax (PAT), translating to a growth of 7.89% from RM1.6 billion in FY2017 to RM1.7 billion in FY2018. On a CAGR basis, the Profit After Tax (PAT) grew by 36.17% was in line with the growth of revenue.

Cash Flow Statement

The group have generated net cash flow from operating activities of RM353.1 million in FY2018 compared to RM2.2 billion in the previous year. The decrease in net cash from operating activities was mainly due to the interest paid (RM323.1 million), taxes paid (RM45 million) and retirement benefit paid (RM3.4 million). Even though the cash flow is lesser in FY2018, the company still have enough cash used for business expansion.

The net cash from investing activities in FY2018 is (RM9 million) was mainly due to the group received proceeds disposal from Property, Plant and Equipment (PPE) & associate, dividend received from investment securities & associate and net cash inflow from partial disposal of an interest in subsidiary with a total amounting of RM10.6 billion. The positive cash flow indicates that the firm is generating a positive return from their investment and gain through the disposal of assets.

The net cash from financing activities in FY2018 is (-RM8.1 billion) was mainly attributed to the repayment of borrowings and dividends paid to shareholders with a total amount of RM9.3 billion.

Based on liquidity ratio calculation, AIRASIA has a current ratio of 1.2872 times in FY2018 compared to 0.8104 times in FY2017 indicates that the company do not face any liquidity issue as they are capable to pay back its liabilities if any unforeseeable circumstances occurred by using current assets such as inventories, receivables & prepayments, deposit on aircraft purchase, derivative financial instruments, amounts from (subsidiary, associates, joint ventures and related parties), tax recoverable, asset held for sale, deposits, cash and bank balances amounting to RM8.8 billion.

Prospect and Challenges

AIRASIA has launched the FACES (Fast Airport Clearance Experience System), also known as biometric airport recognition system at Senai International Airport in Johor, Avalon (new airport based in Melbourne) and the airport in Kuching to facilitate the boarding process. For examples, users can board the flight by using facial biometrics which can eliminate the needs to show their passport. (Source: Annual Report FY2018)

The group have to collaborate with Google Cloud to integrate machine learning and artificial intelligence (AI) into every aspect of their business and culture. Their Digital and Data team will work together with Google Cloud engineers on specific business scenarios to gain a solid foundation in enhancing their predictive ability in sales and marketing, as well as asset management. (Source: Annual Report 2018).

As of 2 April 2019, when an upgraded version of AirAsia’s portal was launched, the portal has incorporated OURSHOP (online retail business), tours and activities deal by Vidi. There will be more products and services will be added as airasia.com to be evolved. The group has also launched an international remittance service that will allow instant international transfer from Malaysia for fixed rates as low as RM7 (S$2.31). So far, there are four countries included such as Singapore, Indonesia, Philippines and Thailand. (Source: Business Insider Malaysia, 23Sep2019).

AIRASIA has opened a restaurant (Santan and T&CO) which serving actual aeroplane food at Mid Valley Megamall. According to Tan Sri Dr Anthony Francis Fernandes, he plans to open 5 outlets this year, and 100 over the next three to five years to fulfil the increasing demand for Asian cuisines. (Source: Business Insider Malaysia, 3Dec2019).

By recognising the needs for low-cost carrier terminals to cater for budget travellers, the Government has agreed to set up a dedicated low-cost terminal in Penang by 2022. AirAsia already occupies 50% of the capacity at Penang International Airport and would like to turn Penang into their northern Malaysia transit hub connecting ASEAN directly with the country’s Pearl of the Orient. (Source: Annual Report 2018).

Rating System

Return on Equity (ROE) = Good

Revenue [5 years CAGR] = Average

Net Earnings [5 years CAGR] = Good

Basic Earnings per Share [5 years CAGR] = Good

Interest Coverage = Average

My Insight

Based on my calculation on Discounted Earnings Model, AIRASIA has a fair value of RM4.911. The current market value of AIRASIA is RM1.71 which is undervalued. (Based on 27Dec2019). AIRASIA has a beta of 1.261 (500days) indicates that the company is more volatile than the current market, which means investors/traders are actively trading in this stock; they may face a higher risk. Based on my computation of Compound Annual Growth Rate (CAGR), AIRASIA has an expected market return of 6.25%.

In conclusion, AirAsia Group Berhad has achieved an outstanding performance for revenue and profit after tax in FY2018 due to its capacity expansion. I believe the group’s digital-based ventures such as BIG Loyalty, BigPay, Vidi, RedCargo Logistics, ROKKI, OURSHOP, travel360.com and Redtix will help AIRASIA poised for good ancillary revenue growth going forward.

Disclaimers

The research information and financial opinions expressed by ShareInvestor.com website are for information and education purpose only. We do not make any recommendation for the intention of trading purpose or advice. Although best efforts are made to ensure that all information is accurate and up to date, occasionally unintended errors and misprints may occur. It would help if you did not rely upon the material and information on this website. We will not be liable for any false, inaccurate, incomplete information and losses suffered from your action. It would help if you did your research to make your own investment decision wisely.