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When Malaysia don't want AirAsia to fly...
Does the Malaysian government hate AirAsia?
While there are news of government trying to support their national champions, the news that are coming out of Malaysia are often about how the government is trying to strangle oxygen out from their industry champion.
Somehow, the resilient entrepreneurs from Malaysia often manage to push against the odds and do well in an adverse environment.
I love the gumption of Malaysian entrepreneurs especially those from Penang1.
Ok I digress, let’s talk about Singapore’s closest neighbour - Malaysia and one of the business that I really like.
The best export out of Malaysia is definitely AirAsia2.
Everyone from Thailand, Indonesia to Philippines can fly because of their low airfares. That had brought an increase in leisure travel and business flow within ASEAN3.
AirAsia’s zeal to always lower cost created one of the leanest operator in the world. No low cost airlines in the ASEAN region comes close to what they are doing.
The pandemic has obviously dealt them a huge blow. While Singapore government went full force into supporting Singapore Airlines, Malaysia government did what it is good at doing, twiddling their thumb for a very long time…
AirAsia is helping Malaysia - KLIA rival Singapore - Changi as an air transport hub for the region and if AirAsia goes down Malaysia will loses a really important chess piece when the pandemic ends.
This brings me to my article which I wrote about AirAsia 9 months ago. AirAsia seems well positioned to benefit from the end of the pandemic.
Going back to my article Betting, Trading and Investment, do take note that AirAsia is a bet and is a really small position in my portfolio.
For a long time, AirAsia seems to be surviving without help from the government by raising cash from the public and also raising cash (on the subsidiary level) for its foray into their digital businesses.
For a business which is struggling and transforming, you have to give them lots of credit to their streamlining of their existing airline business and taking the offensive steps of raising money and pushing for growth in their digital businesses.
But alas, you would never expect Malaysian Government to allow Bursa (Malaysia Stock Exchange) to do something4 like this to hurt AirAsia.
By putting AirAsia on PN175 (similar to a watchlist on the SGX) meant that institutional investors will need to exit the company.
This has obviously resulted in a drastic drop in share price.
The bad news is that AirAsia ability to raise fund in the future is impaired6.
The good news is that they had finished their recent fund raising and looks decently funded till the end of 2022.
The bet continue to be on Tony Fernandes as an entrepreneur to reinvent himself and that AirAsia will survive to dominate the low cost airline segment in ASEAN.
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p.s. The pandemic should be at its tail end and things should only get better from here. With vaccination rates like these, ASEAN leaders should just steel up their balls and get ahead with opening.
Penangite are resourceful and has high tenacity. The food there is great as well. Penang looks and feels like Singapore during our early days of independence. Even the industrial policy looks similar. The high tech industry in Penang looks very vibrant and exciting.
Malaysia durian comes in close to that.
Prior to the pandemic, startup founders are flying to Indonesia and getting back to Singapore on the weekends.
In Singapore, the government will be working with SGX to ensure that SIA remains “investible”. Maintaining foreign investor confidence is critical to save an industry stalwart.
PN17 is a great list to dig for deep value companies which got dumped by institutional investors on the Bursa. Take note, all these are usually troubled companies.
AirAsia has to sell more shares at a lower price (resulting in more dilution) as demand from foreign institutional shareholders would be low.