STI Vs VIX
Saturday, May 22, 2010
A history of market bubbles and crashes
A market correction presents an opportunity to pick up good quality stocks.
STI Vs VIX
STI Vs VIX
Friday, May 21, 2010
DJIA off 376
Stocks dive, Dow off 376 on world economic worries
The Dow fell 376.36, or 3.6 percent, to 10,068.01. The S&P 500 fell 43.46, or 3.9 percent, to 1,071.59. The drop was the worst for the Dow since February 2009, and the S&P's worst since April 2009.
The Nasdaq composite index fell 94.36, or 4.1 percent, to 2,204.01, its largest percentage drop since February.
The VIX closed at 45.79, nearly three times its 2010 low of 15.73, reached April 20. But it's about half of the record high of 89 it reached in October 2008 at the height of the financial crisis.
The euro, a key indicator of confidence in Europe's economy, managed to rise to $1.2491 in late afternoon trading, a day after hitting $1.2146, a four-year low. The euro began the year at $1.4325.
The Dow has fallen 1,137 points, or 10.2 percent, since hitting its 2010 high April 26. It has fallen by at least 100 points in nine of the 19 trading days since its peak.
In overseas stock trading, Britain's FTSE 100 fell 1.6, Germany's DAX index dropped 2 percent, and France's CAC-40 lost 2.3 percent.
The Dow fell 376.36, or 3.6 percent, to 10,068.01. The S&P 500 fell 43.46, or 3.9 percent, to 1,071.59. The drop was the worst for the Dow since February 2009, and the S&P's worst since April 2009.
The Nasdaq composite index fell 94.36, or 4.1 percent, to 2,204.01, its largest percentage drop since February.
The VIX closed at 45.79, nearly three times its 2010 low of 15.73, reached April 20. But it's about half of the record high of 89 it reached in October 2008 at the height of the financial crisis.
The euro, a key indicator of confidence in Europe's economy, managed to rise to $1.2491 in late afternoon trading, a day after hitting $1.2146, a four-year low. The euro began the year at $1.4325.
The Dow has fallen 1,137 points, or 10.2 percent, since hitting its 2010 high April 26. It has fallen by at least 100 points in nine of the 19 trading days since its peak.
In overseas stock trading, Britain's FTSE 100 fell 1.6, Germany's DAX index dropped 2 percent, and France's CAC-40 lost 2.3 percent.
Thursday, May 20, 2010
Suntec-cimb
Suntec REIT
OUTPERFORM Maintained
S$1.32 @18/05/10 /Target: S$1.60
One Raffles Quay could boost rents in 2011
• Maintain Outperform; target price raised to S$1.60. We finetune our forward estimates based on lease expiry updates in its annual report, and adjust our renewal forecasts for One Raffles Quay (ORQ) to reflect moderate 3% growth from no growth previously. This aligns our estimates with our more positive view on offices. Our FY10 estimates decline marginally by 0.2%, while FY11-12 estimates rise by 0.3-1%
. Our DDM-based target price accordingly climbs to S$1.60, still using a discount rate of 8.1%.
• Market review for One Raffles Quay could provide upside surprises. While the lease expiry profile for One Raffles Quay shows limited leases due for expiry over the next four years, we do expect market rent reviews, which had been structured into many of the initial leases signed before the completion of ORQ. Company data shows that NLA due for rent review in 2010 and 2011 are 17.8% and 24.8% of net lettable area respectively. As average rents of those initial leases were signed at low rates (S$6psf) vs. even current rates (S$8psf), we believe there is much room for upside surprises for rents in 2010-11.
• End of DPU dilution in FY10. The last tranche of dividends payable through the deferred payment of units is expected in Dec 10, indicating that unitholders can look forward to normalised DPU from FY11.
• Suntec REIT trades at 0.7x P/BV and offers a prospective dividend yield of 7.5%. We understand there are substantial leases in ORQ due for market rent review in FY11, not reflected in its lease expiry profile. This could provide some upside surprises as initial leases signed for ORQ were low (estimated at S$6psf) even against current premium office rents of S$8psf.
OUTPERFORM Maintained
S$1.32 @18/05/10 /Target: S$1.60
One Raffles Quay could boost rents in 2011
• Maintain Outperform; target price raised to S$1.60. We finetune our forward estimates based on lease expiry updates in its annual report, and adjust our renewal forecasts for One Raffles Quay (ORQ) to reflect moderate 3% growth from no growth previously. This aligns our estimates with our more positive view on offices. Our FY10 estimates decline marginally by 0.2%, while FY11-12 estimates rise by 0.3-1%
. Our DDM-based target price accordingly climbs to S$1.60, still using a discount rate of 8.1%.
• Market review for One Raffles Quay could provide upside surprises. While the lease expiry profile for One Raffles Quay shows limited leases due for expiry over the next four years, we do expect market rent reviews, which had been structured into many of the initial leases signed before the completion of ORQ. Company data shows that NLA due for rent review in 2010 and 2011 are 17.8% and 24.8% of net lettable area respectively. As average rents of those initial leases were signed at low rates (S$6psf) vs. even current rates (S$8psf), we believe there is much room for upside surprises for rents in 2010-11.
• End of DPU dilution in FY10. The last tranche of dividends payable through the deferred payment of units is expected in Dec 10, indicating that unitholders can look forward to normalised DPU from FY11.
• Suntec REIT trades at 0.7x P/BV and offers a prospective dividend yield of 7.5%. We understand there are substantial leases in ORQ due for market rent review in FY11, not reflected in its lease expiry profile. This could provide some upside surprises as initial leases signed for ORQ were low (estimated at S$6psf) even against current premium office rents of S$8psf.
Wednesday, May 19, 2010
Malaysian Airlines-midf
Malaysia Airlines
Upgrade to NEUTRAL
Price (17 May 2010) RM2.06
52-wk price Range RM1.80 – RM2.726
A flying quarter Revised Target Price (TP): RM2.10 (from RM2.05)
Revenue is below expectations but operating profit is above. MAS’ 1Q10 revenue was slightly below ours and consensus expectation coming at 22.3% and 22.5% of full year estimates respectively. The variance was due to our overestimation of other revenues. However, its 1Q10 net profit of RM310.0m exceeded our expectation as it is 46.5% of our full year forecast. The difference is due to the RM329m compensation from Airbus for the previous delivery delay of the A380s. This compensation covers the delivery delay from 2007 to 2011 and the management indicated that the compensation for the latest delivery delay from 2011 to 2012 is still being negotiated.
Excluding delay compensation, MAS registered a net loss. If we were to exclude the delay compensation, MAS would have posted a net loss of RM20.0m in 1Q10. This is mainly due to the higher fuel cost incurred. Fuel cost jumped by 41.7% yoy as SinJet prices in 1Q10 averaged USD85 per barrel as compared to USD55 per barrel in 1Q09. However, the net loss is still an improvement of 97.1% yoy
Other areas of operations are improving. MAS registered higher passenger traffic (measured in RPK) with a growth of 29.3% in 1Q10. This is higher than the average 12% registered by its co-member of Association of Asia Pacific Airlines (AAPA). Load factors have improved as well, with load factor up to 74.8% from 56.1% in 1Q09. However, this high load factor can only come about from low yields (a 21.3% decrease to 23.2 sen/RPK). This continues to be an area of concern for MAS as yields has been flat at around the 23 sen/RPK level since 2Q09. However, the management has indicated that it would be looking at increasing the yields on selected high demand route going forward such as APEC region.
Valuation. We are revising upwards our FY10 net profit forecast by 2.6% as we have overestimated the impact of the one week European airport closure due to the volcanic ash cloud. According to the management, the impact due from the airport closures was RM15m. Coupled with the expected continuing growth and MAS’ network expansion; we are upgrading our recommendation to NEUTRAL for the stock, with a revised target price of RM2.10 (from RM2.05) based on a PER of 9x. Although its good performance suggests a higher re-rating, we believe that there is still uncertainty in relation to the situation in Europe as the volcano continues its sporadic ash release.
Upgrade to NEUTRAL
Price (17 May 2010) RM2.06
52-wk price Range RM1.80 – RM2.726
A flying quarter Revised Target Price (TP): RM2.10 (from RM2.05)
Revenue is below expectations but operating profit is above. MAS’ 1Q10 revenue was slightly below ours and consensus expectation coming at 22.3% and 22.5% of full year estimates respectively. The variance was due to our overestimation of other revenues. However, its 1Q10 net profit of RM310.0m exceeded our expectation as it is 46.5% of our full year forecast. The difference is due to the RM329m compensation from Airbus for the previous delivery delay of the A380s. This compensation covers the delivery delay from 2007 to 2011 and the management indicated that the compensation for the latest delivery delay from 2011 to 2012 is still being negotiated.
Excluding delay compensation, MAS registered a net loss. If we were to exclude the delay compensation, MAS would have posted a net loss of RM20.0m in 1Q10. This is mainly due to the higher fuel cost incurred. Fuel cost jumped by 41.7% yoy as SinJet prices in 1Q10 averaged USD85 per barrel as compared to USD55 per barrel in 1Q09. However, the net loss is still an improvement of 97.1% yoy
Other areas of operations are improving. MAS registered higher passenger traffic (measured in RPK) with a growth of 29.3% in 1Q10. This is higher than the average 12% registered by its co-member of Association of Asia Pacific Airlines (AAPA). Load factors have improved as well, with load factor up to 74.8% from 56.1% in 1Q09. However, this high load factor can only come about from low yields (a 21.3% decrease to 23.2 sen/RPK). This continues to be an area of concern for MAS as yields has been flat at around the 23 sen/RPK level since 2Q09. However, the management has indicated that it would be looking at increasing the yields on selected high demand route going forward such as APEC region.
Valuation. We are revising upwards our FY10 net profit forecast by 2.6% as we have overestimated the impact of the one week European airport closure due to the volcanic ash cloud. According to the management, the impact due from the airport closures was RM15m. Coupled with the expected continuing growth and MAS’ network expansion; we are upgrading our recommendation to NEUTRAL for the stock, with a revised target price of RM2.10 (from RM2.05) based on a PER of 9x. Although its good performance suggests a higher re-rating, we believe that there is still uncertainty in relation to the situation in Europe as the volcano continues its sporadic ash release.
Rickmers Maritime -ocbc
Shipping trusts: Not out of the woods yet
RMT concludes negotiations with key stakeholders. In Apr, RMT's sponsor Rickmers Group agreed to discharge RMT's obligation to purchase seven newbuild vessels (with long-term charters attached) for US$918.7m (three are already warehoused with the sponsor). RMT will have to pay the sponsor US$64m (about 7% of the acquisition cost) as compensation. Additionally, the US$130m top-up loan facility maturing on 30 Apr has been extended for a period of five years. RMT also has to make a prepayment of US$59m towards its loan facilities. RMT's lenders also agreed to waive the value-to-loan requirements on all of the trust's existing loans for up to three years. As part of the agreement with RMT's lenders, RMT cannot pay out more than 0.6 US cents/quarter while its value-to-loan coverage is breached in any of its loan tranches.
These agreements do take RMT away from the brink of bankruptcy but also create, in our opinion, a stasis situation where RMT cannot exert much control over its cash flows. The end point is also unclear (as we do not know what the VTL gap is). RMT could just bide its time under these agreements or possibly raise fresh equity (with a much recovered unit price) and get out of these restrictive agreements.
These developments are contingent on various requirements including unitholders approval for the discharge agreement with the sponsor (an EGM will be convened).
RMT concludes negotiations with key stakeholders. In Apr, RMT's sponsor Rickmers Group agreed to discharge RMT's obligation to purchase seven newbuild vessels (with long-term charters attached) for US$918.7m (three are already warehoused with the sponsor). RMT will have to pay the sponsor US$64m (about 7% of the acquisition cost) as compensation. Additionally, the US$130m top-up loan facility maturing on 30 Apr has been extended for a period of five years. RMT also has to make a prepayment of US$59m towards its loan facilities. RMT's lenders also agreed to waive the value-to-loan requirements on all of the trust's existing loans for up to three years. As part of the agreement with RMT's lenders, RMT cannot pay out more than 0.6 US cents/quarter while its value-to-loan coverage is breached in any of its loan tranches.
These agreements do take RMT away from the brink of bankruptcy but also create, in our opinion, a stasis situation where RMT cannot exert much control over its cash flows. The end point is also unclear (as we do not know what the VTL gap is). RMT could just bide its time under these agreements or possibly raise fresh equity (with a much recovered unit price) and get out of these restrictive agreements.
These developments are contingent on various requirements including unitholders approval for the discharge agreement with the sponsor (an EGM will be convened).
PST-ocbc
Shipping trusts: Not out of the woods yet
PST's manager also emphasized that "PST is actively on the lookout for potential acquisitions that meet [its] investment criteria and add value for [its] unitholders". The manager said a number of deals were on the table, with some in the final stages of due diligence. It also said any deal is likely to diversify PST out of container vessels. PST is currently geared at 0.87x debt-to-equity, and has cash at hand of US$19.6m as of 31 Mar. Assuming US$15m equity is deployed and debt is available at 60% loan-to-value,
PST could potentially acquire US$37.5m worth of vessels without raising additional equity. This amount should not be underestimated, potentially adding 0.15 US cents to annual DPU (a conservative estimate). The key concerns here are counterparty quality and PST's ability to execute well outside the container space
Growths plans offset by continuing risks. The sector, in our view, remains highly vulnerable due to counterparty risks – and this incident highlights that the broader shipping industry is not out of the woods yet. We expect both PST and FSLT to acquire new vessels this year but the key challenge will be to secure high quality counterparties and still make an accretive deal. Maintain NEUTRAL view. PST is our preferred pick because of its balance sheet strength
PST's manager also emphasized that "PST is actively on the lookout for potential acquisitions that meet [its] investment criteria and add value for [its] unitholders". The manager said a number of deals were on the table, with some in the final stages of due diligence. It also said any deal is likely to diversify PST out of container vessels. PST is currently geared at 0.87x debt-to-equity, and has cash at hand of US$19.6m as of 31 Mar. Assuming US$15m equity is deployed and debt is available at 60% loan-to-value,
PST could potentially acquire US$37.5m worth of vessels without raising additional equity. This amount should not be underestimated, potentially adding 0.15 US cents to annual DPU (a conservative estimate). The key concerns here are counterparty quality and PST's ability to execute well outside the container space
Growths plans offset by continuing risks. The sector, in our view, remains highly vulnerable due to counterparty risks – and this incident highlights that the broader shipping industry is not out of the woods yet. We expect both PST and FSLT to acquire new vessels this year but the key challenge will be to secure high quality counterparties and still make an accretive deal. Maintain NEUTRAL view. PST is our preferred pick because of its balance sheet strength
FSL Trust - ocbc
Shipping trusts: Not out of the woods yet
FSLT struggles with vessel re-delivery. FSLT's charterer Groda Shipping recently requested FSLT to take re-delivery of two of its product tankers Verona I and Nika I as Groda does not intend to continue to make full charter payments. To recap, both vessels are under a seven-year bareboat charter agreement fixed at US$20,700/day each until Nov 2014. FSLT is currently estimating (conservatively) that it can earn US$7,000/day per vessel on a bareboat charter equivalent basis (down 66.2%). The vessels currently have planned voyages under a Contract of Affreightment with Rosneft and FSLT's "immediate priority is the continued smooth operation of the vessels whilst [it explores] alternative commercial solutions". The manager has decided to suspend the management fee it is entitled to receive on the two vessels under further notice. It also said that FSLT's DPU guidance for 2Q FY10 and beyond is under review by the Board.
Our key concern is what the redelivery means for the rest of FSLT's product tanker portfolio (26% of total revenue including Groda). FSLT is "presently not aware of any information that would lead it to believe that its other customers would not continue to fulfill their lease payment obligations." On a positive note, we understand that this development does not impact FSLT's loans. Still, any reduction in revenue could affect FSLT's plans to raise unsecured debt.
Acquisition plans on the runway? FSLT has yet to deploy the US$28.3m net proceeds from its Sep 2009 placement. At 1Q10 results, its manager said an announcement was likely in "a matter of weeks / possibly in a month or two". FSLT reiterated its target asset yield of 15% and its plan to further diversify into a previously untapped vessel sub-sector (for example, offshore). A significant change in guidance was that FSLT is "now hopeful of lifting acquisition projects over and above" the placement proceeds because of increasing access to capital.
Growths plans offset by continuing risks. The sector, in our view, remains highly vulnerable due to counterparty risks – and this incident highlights that the broader shipping industry is not out of the woods yet. We expect both PST and FSLT to acquire new vessels this year but the key challenge will be to secure high quality counterparties and still make an accretive deal. Maintain NEUTRAL view. PST is our preferred pick because of its balance sheet strength
FSLT struggles with vessel re-delivery. FSLT's charterer Groda Shipping recently requested FSLT to take re-delivery of two of its product tankers Verona I and Nika I as Groda does not intend to continue to make full charter payments. To recap, both vessels are under a seven-year bareboat charter agreement fixed at US$20,700/day each until Nov 2014. FSLT is currently estimating (conservatively) that it can earn US$7,000/day per vessel on a bareboat charter equivalent basis (down 66.2%). The vessels currently have planned voyages under a Contract of Affreightment with Rosneft and FSLT's "immediate priority is the continued smooth operation of the vessels whilst [it explores] alternative commercial solutions". The manager has decided to suspend the management fee it is entitled to receive on the two vessels under further notice. It also said that FSLT's DPU guidance for 2Q FY10 and beyond is under review by the Board.
Our key concern is what the redelivery means for the rest of FSLT's product tanker portfolio (26% of total revenue including Groda). FSLT is "presently not aware of any information that would lead it to believe that its other customers would not continue to fulfill their lease payment obligations." On a positive note, we understand that this development does not impact FSLT's loans. Still, any reduction in revenue could affect FSLT's plans to raise unsecured debt.
Acquisition plans on the runway? FSLT has yet to deploy the US$28.3m net proceeds from its Sep 2009 placement. At 1Q10 results, its manager said an announcement was likely in "a matter of weeks / possibly in a month or two". FSLT reiterated its target asset yield of 15% and its plan to further diversify into a previously untapped vessel sub-sector (for example, offshore). A significant change in guidance was that FSLT is "now hopeful of lifting acquisition projects over and above" the placement proceeds because of increasing access to capital.
Growths plans offset by continuing risks. The sector, in our view, remains highly vulnerable due to counterparty risks – and this incident highlights that the broader shipping industry is not out of the woods yet. We expect both PST and FSLT to acquire new vessels this year but the key challenge will be to secure high quality counterparties and still make an accretive deal. Maintain NEUTRAL view. PST is our preferred pick because of its balance sheet strength
Tuesday, May 18, 2010
Malaysian Airline - rhb
Malaysian Airline System
Share Price : RM2.06
Fair Value : RM1.60
52wk Price Range (RM) 1.80-2.67
Recom : Underperform (Maintained)
Operationally In The Red In 1QFY12/10
Passenger load factors = 74.8%
Passenger cargo load factors = 77.6%
Revenue per RPK = 23.2 sen (-21.2% yoy, +0.8% qoq )
Average fuel cost = USD85.3/barrel (+54.4% y-o-y)
♦ In the red in 1QFY12/ 10. Excluding RM329m A380 compensation and RM56.7m derivative gains comprising largely mark-to-market (MTM) gains from fuel hedging contracts (long position) pursuant to FRS on the back of higher crude oil prices, MAS reported a normalised net loss of RM75.6m in 1QFY12/10. As we expect MAS to be profitable over the next three quarters on the back of a mild recovery in the global air travel sector and seasonally stronger 2H, we consider MAS’s 1QFY12/10 results within our full-year net profit forecast of RM381.4m but above the market consensus of RM30.4m net loss for the full year.
♦ Sharp rise in equity. RM2.7bn gross proceeds from the recent rights issue, coupled with A380 compensation and derivative gains in 1QFY12/10 helped to boost MAS’s equity from RM735.7m as at end-4QFY12/10 to RM3.65bn as at end 1QFY12/10. This means MAS is now in compliance with listing rules with regards to capital adequacy.
♦ Fuel hedge positions. As at 31 Mar 2010, MAS effectively hedged forward 60% and 40% of its FY12/10-11 fuel requirements at about US$100/bbl WTI.
♦ Fleet renew al plan not a re-rating catalyst. We are more inclined not to see MAS’s fleet renewal plan as a re-rating catalyst. MAS did acknowledge during its recent annual Investors Day in Apr 2010 that the move is not pre-emptive but to pace itself with its competitors. To recap, under the plan, MAS will gradually phase out its existing leased older generation B747-400, A330-200, B737-400, and used new generation A330-300 and B737-800 aircraft, replacing them with new generation A380-800 and brand new A330-300 and B737-800 aircraft (see Table 6).
♦ Forecasts. Maintained.
♦ Risks to our view . These include: (1) A stronger-than-expected recovery in the air travel sector; (2) Lower jet fuel cost; and (3) Effective containment of outbreaks of pandemic diseases.
♦ Road to recovery not without speed bumps. We believe the airline sector is poised for improved prospects over the near term, in line with the recovery in the global economy, but not without some speed bumps along the way such as: (1) A mild rebound in the global economy will not materially stimulate demand for air travel; (2) Over the short term, new capacity will continue to hit the market, intensify competition and capping yields; and (3) Rising crude oil prices that will crimp margins. Indicative fair value is RM1.60 based on 14x FY12/10 EPS, in line with its nearest comparable Singapore Airlines Ltd. Maintain Underperform .
Share Price : RM2.06
Fair Value : RM1.60
52wk Price Range (RM) 1.80-2.67
Recom : Underperform (Maintained)
Operationally In The Red In 1QFY12/10
Passenger load factors = 74.8%
Passenger cargo load factors = 77.6%
Revenue per RPK = 23.2 sen (-21.2% yoy, +0.8% qoq )
Average fuel cost = USD85.3/barrel (+54.4% y-o-y)
♦ In the red in 1QFY12/ 10. Excluding RM329m A380 compensation and RM56.7m derivative gains comprising largely mark-to-market (MTM) gains from fuel hedging contracts (long position) pursuant to FRS on the back of higher crude oil prices, MAS reported a normalised net loss of RM75.6m in 1QFY12/10. As we expect MAS to be profitable over the next three quarters on the back of a mild recovery in the global air travel sector and seasonally stronger 2H, we consider MAS’s 1QFY12/10 results within our full-year net profit forecast of RM381.4m but above the market consensus of RM30.4m net loss for the full year.
♦ Sharp rise in equity. RM2.7bn gross proceeds from the recent rights issue, coupled with A380 compensation and derivative gains in 1QFY12/10 helped to boost MAS’s equity from RM735.7m as at end-4QFY12/10 to RM3.65bn as at end 1QFY12/10. This means MAS is now in compliance with listing rules with regards to capital adequacy.
♦ Fuel hedge positions. As at 31 Mar 2010, MAS effectively hedged forward 60% and 40% of its FY12/10-11 fuel requirements at about US$100/bbl WTI.
♦ Fleet renew al plan not a re-rating catalyst. We are more inclined not to see MAS’s fleet renewal plan as a re-rating catalyst. MAS did acknowledge during its recent annual Investors Day in Apr 2010 that the move is not pre-emptive but to pace itself with its competitors. To recap, under the plan, MAS will gradually phase out its existing leased older generation B747-400, A330-200, B737-400, and used new generation A330-300 and B737-800 aircraft, replacing them with new generation A380-800 and brand new A330-300 and B737-800 aircraft (see Table 6).
♦ Forecasts. Maintained.
♦ Risks to our view . These include: (1) A stronger-than-expected recovery in the air travel sector; (2) Lower jet fuel cost; and (3) Effective containment of outbreaks of pandemic diseases.
♦ Road to recovery not without speed bumps. We believe the airline sector is poised for improved prospects over the near term, in line with the recovery in the global economy, but not without some speed bumps along the way such as: (1) A mild rebound in the global economy will not materially stimulate demand for air travel; (2) Over the short term, new capacity will continue to hit the market, intensify competition and capping yields; and (3) Rising crude oil prices that will crimp margins. Indicative fair value is RM1.60 based on 14x FY12/10 EPS, in line with its nearest comparable Singapore Airlines Ltd. Maintain Underperform .
Malaysian Airline -ecm
Malaysian Airline System
RM2.06 - Hold
Target Price: RM2.22
52-week Range (RM) 1.80 – 2.67
1QFY10 : Saved by exceptional gains
Result 1Q10
1Q10 core net -RM224m (-22% qoq)
Passenger load factors = 74.8%
Passenger cargo load factors = 77.6%
Revenue per RPK = 23.2 sen (-21.2% yoy, +0.8% qoq )
Average fuel cost = USD85.3/barrel (+54.4% y-o-y)
• Below expectations
MAS’ 1QFY10 net profit of RM310.0m exceeded house and consensus numbers on an annualised basis. However, this was mainly due to RM329m of cash compensation received for late delivery of A380 aircrafts. On an adjusted basis, MAS’ 1QFY10 results would have missed both house and consensus numbers due to continued low revenue yield.
• Traffic volume expanded…
Both passenger and cargo traffic volumes have improved significantly from a year ago. RPK (passenger traffic) has increased 29.3% y-o-y to 8.77m km while LTK (cargo traffic) has increased by 31.3% y-o-y. Passenger and cargo load factors also improved in tandem to 74.8% and 77.6% respectively.
• …but revenue yield still low
Gains on traffic volume were however negated by continued compressed revenue yield due to stiff competition. Revenue per RPK has declined 21.2% y-o-y to 23.2 sen and just 0.8% higher q-o-q. In the meantime, average fuel cost has increased by 54.4% y-o-y to USD85.3/barrel in 1QFY10. Non-fuel cost per ASK has however declined 3.9% y-o-y.
• Fuel surcharge hike on the cards
Amid recovering passenger traffic, rising fuel costs and recent fuel surcharge hikes imposed by regional competitors, MAS is reviewing its fuel surcharge. To gauge the possible quantum of surcharge hike, we looked back to mid 2007 when fuel cost was similar to current level.Revenue RPK was around 26.4 sen as compared to 23.2 sen now. This suggests that a 14% hike in average fare is possible. However, we remain cautious of the ability of MAS to raise fare due to stiff competition.
• Fairly valued
We cut FY10-FY12 earnings by 66.3%, 9.0% and 9.0% respectively to account for slower than expected revenue yield recovery. At current valuation, we deem MAS as fairly valued and hence, reiterate our HOLD call. Our revised target price of RM2.22 (previously RM2.03) is pegged to a 5.1x EV/EBITDAR target (based on regional airlines’ average) to revised FY2010 EBITDAR.
RM2.06 - Hold
Target Price: RM2.22
52-week Range (RM) 1.80 – 2.67
1QFY10 : Saved by exceptional gains
Result 1Q10
1Q10 core net -RM224m (-22% qoq)
Passenger load factors = 74.8%
Passenger cargo load factors = 77.6%
Revenue per RPK = 23.2 sen (-21.2% yoy, +0.8% qoq )
Average fuel cost = USD85.3/barrel (+54.4% y-o-y)
• Below expectations
MAS’ 1QFY10 net profit of RM310.0m exceeded house and consensus numbers on an annualised basis. However, this was mainly due to RM329m of cash compensation received for late delivery of A380 aircrafts. On an adjusted basis, MAS’ 1QFY10 results would have missed both house and consensus numbers due to continued low revenue yield.
• Traffic volume expanded…
Both passenger and cargo traffic volumes have improved significantly from a year ago. RPK (passenger traffic) has increased 29.3% y-o-y to 8.77m km while LTK (cargo traffic) has increased by 31.3% y-o-y. Passenger and cargo load factors also improved in tandem to 74.8% and 77.6% respectively.
• …but revenue yield still low
Gains on traffic volume were however negated by continued compressed revenue yield due to stiff competition. Revenue per RPK has declined 21.2% y-o-y to 23.2 sen and just 0.8% higher q-o-q. In the meantime, average fuel cost has increased by 54.4% y-o-y to USD85.3/barrel in 1QFY10. Non-fuel cost per ASK has however declined 3.9% y-o-y.
• Fuel surcharge hike on the cards
Amid recovering passenger traffic, rising fuel costs and recent fuel surcharge hikes imposed by regional competitors, MAS is reviewing its fuel surcharge. To gauge the possible quantum of surcharge hike, we looked back to mid 2007 when fuel cost was similar to current level.Revenue RPK was around 26.4 sen as compared to 23.2 sen now. This suggests that a 14% hike in average fare is possible. However, we remain cautious of the ability of MAS to raise fare due to stiff competition.
• Fairly valued
We cut FY10-FY12 earnings by 66.3%, 9.0% and 9.0% respectively to account for slower than expected revenue yield recovery. At current valuation, we deem MAS as fairly valued and hence, reiterate our HOLD call. Our revised target price of RM2.22 (previously RM2.03) is pegged to a 5.1x EV/EBITDAR target (based on regional airlines’ average) to revised FY2010 EBITDAR.
Malaysian Airline -cimb
Malaysian Airline System Bhd
OUTPERFORM Maintained
RM2.06 Target: RM3.00
Actions speak louder than words
Result 1Q10
1Q10 core net -RM224m (-22% qoq)
Passenger load factors = 74.8%
Passenger cargo load factors = 77.6%
Revenue per RPK = 23.2 sen (-21.2% yoy, +0.8% qoq )
Average fuel cost = USD85.3/barrel (+54.4% y-o-y)
• Broadly in line; maintain OUTPERFORM and target price of RM3. MAS incurred a 1Q10 core net loss of RM224m, which, annualised, works out to 13% below our full-year loss forecast of RM1,026m. However, we consider this to be broadly in line as the seasonally stronger 2H may be offset by potentially higher jet fuel prices. The core net loss narrowed from RM793m in 1Q09 and also from a loss of RM287m in 4Q09. Despite the rising jet fuel price, MAS achieved a lower loss on the back of yoy and qoq improvement in cargo profits as well as narrower passenger losses on yoy basis. Reported 1Q net profit was RM310m, partly due to RM329m exceptional income received in compensation for A380 delays in 2007-11. As expected, no dividend was declared. We maintain our earnings forecasts and RM3 target price, which is based on an unchanged 6x CY12 core P/E. Potential re-rating catalysts include the global yield recovery and a structural cost reduction from FY11 onwards.
• Strong cargo recovery. The cargo operations carried the quarter, with cargo revenue rising 52% yoy and almost single-handedly taking group revenue 7.7% higher. In contrast, passenger revenue was flat yoy. Passenger RPK demand rose 29% yoy due to the depressed base while cargo AFTK demand increased 8% yoy. Passenger yield has been flat for three consecutive quarters (down 23% yoy), but cargo yield rose 16% yoy on strong recovery in demand. Typically, cargo performance presages the passenger recovery.
• Actions speak louder than words. MAS continued to be cautious in its formal guidance, saying that the European debt crisis and capacity expansion by airline peers could threaten the yield recovery while rising fuel prices could increase costs. On the other hand, MAS is now looking to lease three B737-800s in 3Q10 instead of two. It has increased frequencies and introduced new flights on a variety of routes. Additional services will be announced later. It will work on increasing yields on routes where demand is healthy. Internet bookings are strong while forward bookings are positive. MASkargo has signed an agreement that gives it access to three freighters and an option to lease up to five planes. It also increased cargo capacity to Shanghai, Europe, Sydney, Narita and Jakarta. These actions suggest that MAS is not as cautious as its official statements imply.
Yield improvements and fuel surcharge. MAS highlighted a slide from the IATA showing yoy recovery in Asia-Pacific passengers carried, which has recovered faster than Europe and the US (Figure 1a). While MAS’s passenger numbers have also recovered, yields have been flat for three consecutive quarters, lagging behind other major carriers like SIA. MAS acknowledged that it needed to raise passenger yields and said that it would examine such opportunities for the more popular and in-demand routes. It also spoke of how other airlines like Cathay Pacific, SIA, Taiwanese airlines and Japan Airlines had already revised up their fuel surcharges or were in the process of seeking approval for an increase. We believe MAS will follow its competitors’ lead and raise its fuel surcharge if oil prices continue their uptrend.
The RM329m compensation for A380 delays was received in cash during 1Q and immediately booked into the P&L. This compensation was intended for the delay from original 2007 delivery date to 2011. It will be separately compensated for a subsequent delivery delay by a few months from 2011 to 2Q2012.
Leasing more B737-800 planes. Meanwhile, the strike at Boeing last year has also delayed planned deliveries of the B737-800s. Three aircraft were originally scheduled for delivery in 4Q10 but only two will now be received and the third will be delivered in January 2011. To make up for this, MAS intends to lease another three B737-800s, taking the total leased fleet to six planes by the end of the year compared to our previous forecast of four planes.
OUTPERFORM Maintained
RM2.06 Target: RM3.00
Actions speak louder than words
Result 1Q10
1Q10 core net -RM224m (-22% qoq)
Passenger load factors = 74.8%
Passenger cargo load factors = 77.6%
Revenue per RPK = 23.2 sen (-21.2% yoy, +0.8% qoq )
Average fuel cost = USD85.3/barrel (+54.4% y-o-y)
• Broadly in line; maintain OUTPERFORM and target price of RM3. MAS incurred a 1Q10 core net loss of RM224m, which, annualised, works out to 13% below our full-year loss forecast of RM1,026m. However, we consider this to be broadly in line as the seasonally stronger 2H may be offset by potentially higher jet fuel prices. The core net loss narrowed from RM793m in 1Q09 and also from a loss of RM287m in 4Q09. Despite the rising jet fuel price, MAS achieved a lower loss on the back of yoy and qoq improvement in cargo profits as well as narrower passenger losses on yoy basis. Reported 1Q net profit was RM310m, partly due to RM329m exceptional income received in compensation for A380 delays in 2007-11. As expected, no dividend was declared. We maintain our earnings forecasts and RM3 target price, which is based on an unchanged 6x CY12 core P/E. Potential re-rating catalysts include the global yield recovery and a structural cost reduction from FY11 onwards.
• Strong cargo recovery. The cargo operations carried the quarter, with cargo revenue rising 52% yoy and almost single-handedly taking group revenue 7.7% higher. In contrast, passenger revenue was flat yoy. Passenger RPK demand rose 29% yoy due to the depressed base while cargo AFTK demand increased 8% yoy. Passenger yield has been flat for three consecutive quarters (down 23% yoy), but cargo yield rose 16% yoy on strong recovery in demand. Typically, cargo performance presages the passenger recovery.
• Actions speak louder than words. MAS continued to be cautious in its formal guidance, saying that the European debt crisis and capacity expansion by airline peers could threaten the yield recovery while rising fuel prices could increase costs. On the other hand, MAS is now looking to lease three B737-800s in 3Q10 instead of two. It has increased frequencies and introduced new flights on a variety of routes. Additional services will be announced later. It will work on increasing yields on routes where demand is healthy. Internet bookings are strong while forward bookings are positive. MASkargo has signed an agreement that gives it access to three freighters and an option to lease up to five planes. It also increased cargo capacity to Shanghai, Europe, Sydney, Narita and Jakarta. These actions suggest that MAS is not as cautious as its official statements imply.
Yield improvements and fuel surcharge. MAS highlighted a slide from the IATA showing yoy recovery in Asia-Pacific passengers carried, which has recovered faster than Europe and the US (Figure 1a). While MAS’s passenger numbers have also recovered, yields have been flat for three consecutive quarters, lagging behind other major carriers like SIA. MAS acknowledged that it needed to raise passenger yields and said that it would examine such opportunities for the more popular and in-demand routes. It also spoke of how other airlines like Cathay Pacific, SIA, Taiwanese airlines and Japan Airlines had already revised up their fuel surcharges or were in the process of seeking approval for an increase. We believe MAS will follow its competitors’ lead and raise its fuel surcharge if oil prices continue their uptrend.
The RM329m compensation for A380 delays was received in cash during 1Q and immediately booked into the P&L. This compensation was intended for the delay from original 2007 delivery date to 2011. It will be separately compensated for a subsequent delivery delay by a few months from 2011 to 2Q2012.
Leasing more B737-800 planes. Meanwhile, the strike at Boeing last year has also delayed planned deliveries of the B737-800s. Three aircraft were originally scheduled for delivery in 4Q10 but only two will now be received and the third will be delivered in January 2011. To make up for this, MAS intends to lease another three B737-800s, taking the total leased fleet to six planes by the end of the year compared to our previous forecast of four planes.
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