Tuesday, July 30, 2013

Malaysian Airlines System 2Q13: Just Outside the Profit Zone (MKE)

Malaysian Airlines System
Buy(from Hold)
Share price: MYR0.31
Target price: MYR0.35(unchanged)
2Q13: Just Outside the Profit Zone

Still making losses, but vastimprovement expected. MAS will release its 2Q13 results on 31 July. 2Q is a seasonally weak quarter, and we expect MAS to post a core loss of MYR34.6m (+78% YoY, +90%QoQ). This strong improvement is due to higher load factors and lower fuel price of USD124.4/bbl (-5.8% YoY, -7.9% QoQ). MASshould be profitable in 2H13 as it enters into its seasonally strong quarters of 3Q (strongest) and 4Q (second strongest) and benefits from lower operating cost from new aircraft induction. We upgrade the stock to a


BUY (from HOLD) as the share price has plunged into value territory. We keep our forecasts and target price of MYR0.35/share unchanged based on 1.2x 2013 P/B which is in-line with regional peers.

2Q13 operating statistics is remarkable. MAS’ 2Q13 passenger load factor surged by 6.6ppts YoY to 80.4%, while its cargo load factor increased by 1.5ppts YoY to 72.8%. The overall load factor (passenger + cargo) was up by 4.9ppts YoY to 77.9%.This is MAS’s best performance since inception and has surpassed Singapore Airlines (widely regarded as the industry leader) which achieved 78.0% for the same period under review.

However, at the expense of yields.We expect MAS’ 2Q13 yields to decline by 4.5% YoY based on observation of other regional peers’ results and our observation of published ticket fares.This decline in yields is expected as MAS is embarking on a load active, yield passive strategy. It appears the first objective to achieve high loads is already at hand, assuming MAS can sustain its 2Q13’s performance going forward. Now, MAS will focus on overturning its yield decline trend.

Time to accumulate.The stock has plummeted by 23% since our SELL call at end of May. We think this is overdone as MAS’ current market capitalization of MYR5.1b is roughly equal to its cash pile. We forecast MAS will be profitable in 2H13 and generate positive cashflow. Therefore MAS should trade above its current book value to reflect its improving business outlook.



Source/Extract/Excerpts/来源/转贴/摘录: MKE-Research,
Publish date: 29/07/13

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