Saturday, July 27, 2013

MAS seen mitigating losses in Q2

By RHB Research
Buy (maintained)
Fair value: RM0.43

MALAYSIA Airline System’s (MAS) passenger load factor hit a new high of 84.3% in June.

Its overall load factor for the second quarter of financial year 2013 improved by 3.9% quarter-on-quarter (qoq) and 4.9% year-on-year (yoy).

This seems to indicate that MAS may be able to mitigate its losses in the quarter amid yield pressure.

MAS’ operating stats for the quarter continued to show positive growth.

Total revenue passenger kilometres (RPK) climbed 13.3% qoq and 29.3% yoy, while total available seat kilometres (ASK) grew 7.8% qoq and 18.7% yoy.

It is worth noting that the growth of domestic passenger RPK in the quarter (+22.1% qoq, +23.3% yoy) may indicate that the company’s fleet modernisation is drawing more passengers.

Meanwhile, its participation in the oneworld alliance also helped lift its international passenger RPK by 12.3% qoq and 30.1% yoy.

In June, the national carrier’s passenger load factor hit a new high of 84.3% (up 6.9% yoy), breaking its earlier record of 81.4% in December 2012.

We believe that the yields of full-service carriers (FSC) including MAS are still under pressure.

Nonetheless, given the strong improvement in its operating stats, we think MAS may be able to mitigate its losses in the second quarter of financial year 2013, for which the results will be released this coming Wednesday.

That said, we are hopeful that the improved frequency or passenger volume would help mitigate the company’s costs associated with slashing airfares.

We keep our “trading buy” recommendation on MAS, with our RM0.43 fair value based on nine times of financial year 2014’s adjusted enterprise value per earnings before interest, taxes, depreciation, amortisation, and restructuring or rent costs (9x adjusted FY14F EV/EBITDAR).

As highlighted previously, we advise caution on MAS’ potential losses in the quarter – which is a seasonally weak quarter in the year – although we believe that the losses should narrow in the current quarter.

Publish date: 26/07/13

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