MALAYSIAN budget carrier AirAsia Group is now rated "hold", up from "sell", thanks to narrowing downside risk, according to Maybank's research report on Tuesday evening.

However, trading in its shares was halted on Wednesday morning after its auditor said there were material uncertainties that cast doubt on the company's ability to continue as a going concern.

By 2.40pm on Wednesday, after the trading halt was lifted at 2.30pm, AirAsia shares had tumbled 9.9 per cent or RM0.085 to RM0.77.

In an unqualified audit opinion on the airline's earnings issued late on Tuesday, Ernst & Young said the financial statements were prepared on a going concern basis - which is dependent upon a recovery from the Covid-19 pandemic and the success of fundraising efforts.

Prior to that, in Maybank's report, analyst Yin Shao Yang cut the target price on the stock to RM0.92 per share, from RM1.56 previously, based on his estimate of a 1.4-times price to book value for FY2021. The Kuala Lumpur-listed counter closed at RM0.855 on Tuesday, down RM0.04 or 4.5 per cent. 

Mr Yin wrote: "Q1 FY20 core net loss was below our expectations. We slash our FY20 and FY21 estimates to reflect core net losses and nil dividends."

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"That said, we take heart that AirAsia has resumed flights in five of six countries that it operates in (Malaysia, Thailand, Indonesia, the Philippines and India), and fares are rising," he added. The remaining country, Japan, will see flights resuming in August.

AirAsia said that average fares have been rising, with an 8 per cent year-on-year increase in Q1 FY20, as the Covid-19 outbreak has caused airlines to cut capacity and competition.

The budget airline on Monday reported a net loss of RM803.8 million (S$262.1 million) for the first quarter ended March 2020, sinking into the red compared with a RM96.1 million net profit a year ago. Excluding exceptional items, the quarter's core net loss of RM531.7 million still came in below Maybank's expectations.

The RM2.31 billion revenue for Q1 also underperformed the research team's expectations, coming in at just 18 per cent of Maybank's full-year estimate. 

This shortfall was due to the number of passengers carried declining by 22 per cent year on year - in contrast to Maybank's estimate of a 2 per cent increase - during the quarter caused by the coronavirus pandemic, as well as an RM110 million loss on settlement of fuel hedges.

As a result, AirAsia has been actively managing its costs, and had a cash balance of RM1.6 billion as at March 31, 2020. Through a combination of debt and equity financing, the carrier expects to "outlive" the pandemic, Maybank noted.