Malaysian Airline System Bhd (Nov 18, RM1.40)
Downgrade to hold at RM1.41 with revised target price of RM1.55 (from RM2.70): MAS will release its 3QFY11 results in late November. We expect 3QFY11 to be loss-making due to the impact of 45% higher fuel price year-on-year (y-o-y) and the globally soft yield environment. The challenging global economy is undermining business activity, business confidence and the sentiment to travel. Against this backdrop, we have lowered our earnings forecasts and downgrade MAS to a “hold” (from “buy”) with a new target price of RM1.55 (from RM2.70) pegged to 5.6 times 2012 adjusted enterprise value/earnings before interest, tax, depreciation, amortisation and rental — on par with global peers.
MAS’ 3QFY11 passenger load factor contracted by 2.7 percentage points (ppt) y-o-y to 75.9%. Cargo load factor fell by 3.4 ppt y-o-y to 68.9%. The overall load factor (passenger + cargo) declined by 2.7 ppt y-o-y to 73.5%. Overall, we expect yield decline of 2% y-o-y, based on our observation of Singapore Airlines, Cathay Pacific Airways and Thai Airways’ results.
We estimate the Group’s 3QFY11 core net loss to be RM242 million after adjusting for FRS139 derivative mark-to-market which is non-cash. Fuel price was the culprit as it has risen by 45% y-o-y. Furthermore, the yield environment was very soft due to the challenging global economic outlook coupled with the negative impact of the Japanese disasters and Middle East uprisings.
The weak 3Q is likely to intensify based on the negative statements made by various other airline CEOs. We forecast 4QFY11 and the early part of 2012 to be loss-making for MAS after imputing for a higher jet fuel price of US$120 per bbl (previously US$110 per bbl) and a softer yield environment. MAS’ cost structure is not nimble enough to deal with the current market environment; it should be in better shape in 2HFY12 when it removes most of its old aircraft from the fleet.
We have lowered our earnings forecasts to adjust for higher fuel price, lower yields and lower capacity deployment. We are optimistic on the tie-up with AirAsia as it brings forth exciting opportunities with synergy potential in the billions; but execution plans are iffy in announcements and very slow. — Maybank IB Research, Nov 18
This article appeared in The Edge Financial Daily, November 21, 2011.
Downgrade to hold at RM1.41 with revised target price of RM1.55 (from RM2.70): MAS will release its 3QFY11 results in late November. We expect 3QFY11 to be loss-making due to the impact of 45% higher fuel price year-on-year (y-o-y) and the globally soft yield environment. The challenging global economy is undermining business activity, business confidence and the sentiment to travel. Against this backdrop, we have lowered our earnings forecasts and downgrade MAS to a “hold” (from “buy”) with a new target price of RM1.55 (from RM2.70) pegged to 5.6 times 2012 adjusted enterprise value/earnings before interest, tax, depreciation, amortisation and rental — on par with global peers.
MAS’ 3QFY11 passenger load factor contracted by 2.7 percentage points (ppt) y-o-y to 75.9%. Cargo load factor fell by 3.4 ppt y-o-y to 68.9%. The overall load factor (passenger + cargo) declined by 2.7 ppt y-o-y to 73.5%. Overall, we expect yield decline of 2% y-o-y, based on our observation of Singapore Airlines, Cathay Pacific Airways and Thai Airways’ results.
We estimate the Group’s 3QFY11 core net loss to be RM242 million after adjusting for FRS139 derivative mark-to-market which is non-cash. Fuel price was the culprit as it has risen by 45% y-o-y. Furthermore, the yield environment was very soft due to the challenging global economic outlook coupled with the negative impact of the Japanese disasters and Middle East uprisings.
The weak 3Q is likely to intensify based on the negative statements made by various other airline CEOs. We forecast 4QFY11 and the early part of 2012 to be loss-making for MAS after imputing for a higher jet fuel price of US$120 per bbl (previously US$110 per bbl) and a softer yield environment. MAS’ cost structure is not nimble enough to deal with the current market environment; it should be in better shape in 2HFY12 when it removes most of its old aircraft from the fleet.
We have lowered our earnings forecasts to adjust for higher fuel price, lower yields and lower capacity deployment. We are optimistic on the tie-up with AirAsia as it brings forth exciting opportunities with synergy potential in the billions; but execution plans are iffy in announcements and very slow. — Maybank IB Research, Nov 18
This article appeared in The Edge Financial Daily, November 21, 2011.
