It has upgraded AirAsia to a “buy” recommendation, according to a report in The Sun daily. It is maintaining its “buy” call on AirAsia X as it remains confident on its earnings turnaround sustainability.

AirAsia and AirAsia X posted record profitability in 2016.

“Heading into 2017, we expect industry headwinds from heightened competition on the re-invigoration of Malaysia Airlines and aggressive expansion by Malindo Air to pressure industry yields, leading to revenue per available seat kilometre decline,” AffinHwang Capital said in a report.

But it expects AirAsia to weather the impending yield pressure with its cost competitiveness superiority, underpinned by higher aircraft-utilisation hours and process digitalisation to protect yield spreads.

According to the report, the successful turnaround of the previously loss-making affiliates in Indonesia and the Philippines should stem the decline in Thailand, and provide bottom-line support amidst intensifying competition in Malaysia.

“We also expect the upcoming sale of its leasing arm at US$1 billion (RM4.4 billion) to provide much-needed capital to pare down its borrowings and fund the 21 aircraft additions to its fleet in 2017. The potential listing of its Asean affiliates and Holding Company at the Hong Kong Stock Exchange/New York Stock Exchange could crystallise the embedded value and rerate the share price,” AffinHwang Capital said.

Reuters reported earlier that little-known South Korean group, KOTAM (Korea Transportation Asset Management) was in advanced talks to acquire a stake in AirAsia Bhd’s aircraft leasing unit Asia Aviation Capital.

It quoted two people familiar with the matter as saying the deal would value Asia Aviation Capital at about US$900 million.