Business

Wednesday October 10, 2012

Turnaround just round the corner for MAS?

By CHOONG EN HAN
han@thestar.com.my


PETALING JAYA: Is a turnaround just around the corner for ailing national flag carrier Malaysia Airlines (MAS)?

Yes, according to a report by Maybank Investment Bank Research which reckons that MAS will break even in the third quarter of this financial year.

MAS’ year-end is in December and so it will post its quarter three results towards the end of November.

“We think that MAS will break even in the third quarter of 2012 on a 9% quarter-on-quarter drop in unit fuel costs, cost savings from capacity cuts, plus higher load factors and yields as the third quarter is traditionally a peak period. This will lift sentiment on the stock as the market takes comfort in the successful implementation of its business turnaround efforts,” it said.

It maintained a “Buy” call on the company, with an unchanged target price of RM1.20 based on 2013 adjusted EV/EBITDA (enterprise value/ earnings before interest, taxes, depreciation, amortisation, and restructuring or rent costs) of 6.4 times in line with regional peers.

MAS’ shares rose 6% yesterday to close at RM1.06, possibly partly driven by MIB Research’s positive view on the carrier.

Its view, however, remains a contrarian one.

Of the 15 analysts covering the stock, only Maybank and OSK Research have a buy on it. Two others have a hold call on it, while the rest have a sell or underperform call on the stock.

Note that MAS had been in the news over the last few months for the wrong reasons. It was embroiled in a controversial deal that saw a share swap with rivals AirAsia being crafted out September last year, in a bid to lift MAS to become a shining star in the region again.

However, things did not go as planned because of several factors and it was sometime in November last year when analysts began downgrading the stock.

Things did not help when the full service airline reported a shocking RM2.5bil net loss for 2011 in March.

It was the biggest in the airline’s corporate history, and at that point, 17 broking houses had a “sell” call on the stock.

Eventually, the share swap between MAS and AirAsia shareholders was unwound.

Losses thus far for the year stands at RM521.04mil over a revenue of RM6.41bil as of the second quarter ended June 30.

“In the third quarter, we estimate MAS will enjoy cost savings of RM102mil from lower fuel costs, and a RM66mil revenue boost from higher load factor and yields,” it said.

It said MAS exhibited better profits in the second quarter, with a core net loss of RM160mil from losses of RM357mil in the first quarter, and this was due to a 10% to 12% capacity cut on loss-making routes, the disposal of old aircraft and efficiency gains.

OSK, the other house with a buy call on MAS, said in its report dated Aug 15 that for the first half, MAS has successfully trimmed costs across all levels, notably on its sales commissions and from maintenance and handling as man-hour costs improve.

“Management reminded that there is still room for cost cuts as aircraft utilisation improves further with the bigger capacity aircraft coming,” it said.

Maybank’s report also said Malindo Air is not a threat, provided MAS completely abandons any plan to reinitiate Firefly’s jet operations, as the budget market is saturated.

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