Business

Saturday August 8, 2009

MAS results disappointing despite Q2 profit, say analysts

By LEONG HUNG YEE


PETALING JAYA: Malaysia Airlines (MAS) failed to impress analysts despite posting a stellar performance for the second quarter ended June 30.

MAS reported a net profit of RM876mil, or 52.39 sen earnings per share, aided by a RM1.34bil derivative gains on fuel hedging. Revenue for the quarter stood at RM2.56bil.

It recorded an operating loss of RM420.8mil mainly due to lower operating revenue, which is in line with the declining trend in global travel and cargo movements.

OSK Research analyst Ng Sem Guan said despite the huge jump in net profit, the core numbers were a “disappointment”.

He said the RM1.34bil in derivative gains and strong comeback in domestic passenger numbers suggested that the worst may be over for MAS.

“Nonetheless, we are disappointed with the weaker second quarter and are concerned over the protracted downturn and increasing death toll reported among Influenza A(H1N1) cases, which may prolong the airline’s recovery,” Ng said, adding that OSK maintained its “sell” recommendation on MAS.

MAS’ core net loss of RM465mil in the quarter to June 30 was a lot worse than OSK’s and consensus estimates, mainly due to a 20.7% drop in overall yield per revenue passenger kilometre to 23.4 sen on intensified price undercutting, he said.

“A protracted downturn in the global economy may also further pressure yields, given the substantial fare discounts being offered by airlines,” Ng said.

The national carrier also recorded higher non-fuel expenditure on new leases of the 737-800 in 2009, engine maintenance costs for the B-777 and aggressive advertising expenditure.

Ng said MAS’ derivative risk was protected to a certain degree as the carrier had selectively bought options, which would reduce the downside exposure of its existing fuel hedges.

For the first quarter ended March 31, MAS reported a net loss of RM695mil that included a derivative loss of RM557mil following the early adoption of the Financial Reporting Standard 139.

HwangDBS Vickers Research said the core net loss was mainly due to RM350mil realised derivative expenditure or losses, lower load factor and yield. The RM350mil comprised RM233.7mil derivative losses and RM116.4mil premium paid on derivatives.

HwangDBS maintained its fully-valued rating on MAS and cut the forecast financial year ending Dec 31 (FY09) earnings to RM2.2bil from RM1.3bil projected earlier to account for the higher-than-expected realised derivative expenditure losses.

“There could be more downside risks to FY09 earnings if MAS continues to report derivative expenditure or hedging losses as details of the hedging instruments and not available,” HwangDBS said.

AmResearch upgraded MAS to “sell” from hold. It said the airline traffic contraction had moderated significantly.

Kenanga Research said after excluding the RM1.34bil derivative gains, MAS registered a net loss of RM803.7mil in the second quarter and net loss of RM1.6bil for the first half.

It said the derivative gain was a relief for the balance sheet with shareholders’ funds turning positive thus alleviating the company’s PN17 status.

“The pro-forma net loss accounted for 69% of our FY09 forecast net loss,” Kenanga said.

“We are revising our earnings estimates up slightly by 9.6% and 8.3% for FY09 and FY10 respectively, reflecting slightly higher international passenger load factor,” it added.

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