A buyout of AirAsia requires a flight of fancy. Co-founder Tony Fernandes would need about $800 million of additional financing to take Asia's largest budget carrier private. Though private equity deals are rare in the cyclical industry, it could make sense for investors willing to bet on a Malaysian recovery and on low oil prices.
AirAsia shares have been under pressure since Hong Kong-based GMT Research questioned the airline's accounts in June, accusing it of using transactions with loss-making affiliates to flatter its earnings. The stock has partially recovered but remains 38 percent below where it was before the report appeared in June - even after a 6 percent bounce following a Reuters report that Fernandes is considering a buyout.
On conventional measures AirAsia looks cheap. It trades on less than six times expected earnings for the next twelve months, according to Eikon. Philippine rival Cebu Air is valued at more than 7 times, while Chinese upstart Spring Airlines trades on a 26 times multiple. AirAsia's $861 million market capitalisation is equivalent to the value of its aircraft, net of debt, according to calculations by Maybank.
With net debt at $2.4 billion at the end of June - equivalent to six times forward EBITDA - borrowing more would be a stretch. Fernandes would therefore need to find about $800 million of equity to buy out the shares that he and his partner do not already own, assuming a modest 15 percent premium.
Lower energy costs may help. Half the company's fuel requirement for 2015 is hedged at an average cost of $88 per barrel - well above the $52 spot price for Brent crude. But AirAsia is unhedged for 2016. Any recovery in the Malaysian ringgit, which has lost 23 percent of its value against the U.S. dollar this year, would provide an additional thrust for foreign investors.
There are risks, of course. Overcapacity remains a big problem in Southeast Asia. And the only buyouts of airlines in the region that have succeeded have typically been state-backed bailouts.
But even if Fernandes can't get a buyout to fly, the talk alone has provided him with a welcome uplift.
AirAsia shares have been under pressure since Hong Kong-based GMT Research questioned the airline's accounts in June, accusing it of using transactions with loss-making affiliates to flatter its earnings. The stock has partially recovered but remains 38 percent below where it was before the report appeared in June - even after a 6 percent bounce following a Reuters report that Fernandes is considering a buyout.
On conventional measures AirAsia looks cheap. It trades on less than six times expected earnings for the next twelve months, according to Eikon. Philippine rival Cebu Air is valued at more than 7 times, while Chinese upstart Spring Airlines trades on a 26 times multiple. AirAsia's $861 million market capitalisation is equivalent to the value of its aircraft, net of debt, according to calculations by Maybank.
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Lower energy costs may help. Half the company's fuel requirement for 2015 is hedged at an average cost of $88 per barrel - well above the $52 spot price for Brent crude. But AirAsia is unhedged for 2016. Any recovery in the Malaysian ringgit, which has lost 23 percent of its value against the U.S. dollar this year, would provide an additional thrust for foreign investors.
There are risks, of course. Overcapacity remains a big problem in Southeast Asia. And the only buyouts of airlines in the region that have succeeded have typically been state-backed bailouts.
But even if Fernandes can't get a buyout to fly, the talk alone has provided him with a welcome uplift.