Thursday March 7, 2013

Analysts cautious despite MAS fine Q4 results

Analysts say the prospects of full recovery for MAS in the short term remain uncertain Analysts say the prospects of full recovery for MAS in the short term remain uncertain

PETALING JAYA: Analysts are encouraged by the improvement in performance of Malaysia Airlines (MAS) that is now strengthening its balance sheet through its rights issue but they remain cautious because of the lack of short-term catalysts.

Analysts said they remained sceptical to buy into in the carrier’s shares just yet. Over the past 12 months, MAS shares have fallen more than 48%. It closed at 70.5 sen yesterday.

According to Bloomberg consensus, nine analysts have a “sell” call on MAS, two have a “hold” and five gave the carrier a “buy”.

“The prospects of full recovery in the short term remains uncertain. The bulk of MAS’ growth will be buoyed by its fleet renewal programme,” an analyst said, adding that the key risk to MAS’ turnaround was the intensifying competition.

“We think the stock will trade sideways until some good news comes from MAS,” another analyst said.

The flag carrier has recently announced an improved results for the fourth quarter ended Dec 31, 2012. Its proposed capital restructuring and RM3.1bil rights issues were approved by shareholders at an EGM on Tuesday.

Shareholders approved to reduce the par value 90 sen per share to 10 sen per share and a share premium reduction with the objective of resetting accumulated losses to zero.

“Despite the improving quarterly performance, we are still cautious on MAS on the back of the soft global outlook and fierce pricing competition among airlines,” Affin Investment Bank Research said.

M&A Securities said RM1.3bil (42%) of the rights issue would be used for working capital, RM986.8mil (32%) for capital expenditure (capex) and RM777.7mil (25%) for repayment of borrowings.

“The borrowing repayment is expected to result in an interest savings of RM38.36mil a year based on the prevailing interest rate of 3.0% to 5.5% per annum,” it said, adding that it had maintained a fair value for MAS at 86 sen by pegging its current book value per share of 64 sen to the industry average price-to-book value of 1.35 times.

An analyst with a foreign research house said the corporate exercise would enhance MAS’ balance sheet and allow it a “new head start” along with the new fleet it had ordered.

“The rights issue is the fourth pillar of MAS’ financing plan which they have announced last year. MAS needs some RM9bil in capex to fund its aircraft purchase and working capital.

“They’ve already issued some RM1.5bil perpetual junior sukuk last year. With all this in place, hopefully MAS will be able to get a new head start,” he said.

Analysts do not see a big problem with the subscription of MAS’ proposed rights issue as it was renounceable and may be offered to the other entitled shareholders.

Khazanah Nasional Bhd, which has a 69.37% stake, has unconditionally committed to taking up its full entitlement and contribute up to RM2.15bil.

A local bank-backed analyst said should the take-up rate for the offer by the minority shareholders be low, Khazanah might end up holding more of MAS than the maximum of 75% to keep MAS’ listing status and that the company would rectify the situation within the timeframe allowed by the authorities.

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