KUALA LUMPUR: Although recovery for the aviation sector and air travel is expected to gradually take place in 2021, it remains an uphill battle for AirAsia Group Bhd (AAGB), given that it is struggling financially to remain afloat in the current pandemic-laden operating environment.

In a research note today, MIDF Investment maintained its "sell" call on AAGB and said key risks for its call include faster-than-expected travel demand recovery, worsening pandemic, and stricter movement control order imposed on air travels, as well as a further round of equity fundraising.

"We believe its recent share price might have overshot the valuation level that we deem fair for the company based on the current situation.

"We are hopeful on aviation recovery but maintain level-headedness in assessing the viability of the recovery," it said.

While the course charted seemed conservative, the investment bank considered it as precautionary and reasonable at a time when sentiment that lifted the share prices of aviation players may be excessive, given the current surge in new COVID-19 cases.

Meanwhile, on Wednesday, AAGB announced that its digital arm, AirAsia Digital has proposed to acquire Gojek's operations in Thailand for US$50.0 million (US$1=RM4.17) which will be funded via share issuance, giving the sellers a 4.76 per cent stake in AirAsia SuperApp Sdn Bhd.

The proposed acquisition is subject to approval from Bank Negara Malaysia and Bank of Thailand, and the deal is expected to be completed by the fourth quarter of this year.

MIDF Investment said it believed that AAGB's digital segment is still in its infancy and a different ball game altogether.

"We think that the digital segment of AAGB is not self-sustaining yet and still at a scale that cannot sustain the whole group, especially in the near-term.

"Right now, the company's survival is dependant on the success of the group's fundraising activities and reviving its core business, airlines," it added.

MIDF Investment said if it fails to successfully address the immediate needs of its airline business, AAGB will remain in a precarious state, foreseeably longer than 2021-2022.

As at 10.25 am, AirAsia's shares were flat at 89.5 sen.

-- BERNAMA