Malaysian Airline System -
Operating Stats Still Looking Good
Malaysia Airlines (MAS)’ operating statistics for July continued to see positive growth, in line with the airline’s strategy of boosting market share to achieve scale and generate higher revenue to improve profitability. We think the strategy is working despite the airline having to sacrifice yield, as MAS is now generating positive operating cash flow. Maintain NEUTRAL, with its FV at MYR0.34.
- Overview of stats. MAS’ operating statistics continued to improve YTD, with overall load factor for 7M2013 rising 4.3% y-o-y to 76.5%. The passenger division’s load factor for July came in at 83.3% (-1.0% m-o-m, +9.1% y-o-y), largely boosted by the international passengers division’s load factor of 84.0% (-0.3% m-o-m, +9.4% y-o-y). Note that for the past 10 years, the airline recorded a load factor of >80% for only five months. Meanwhile, despite facing fierce competition in the domestic market – which resulted in a 1.6% m-o-m drop in revenue passenger kilometers (RPK) – MAS’ domestic passengers division was still able to record an encouraging load factor of 78.0% (-5.6% m-o-m, +9.9% y-o-y), while its cargo unit saw a slight 1.4% y-o-y improvement in its cumulative seven-month load factor.
- Painful but effective. MAS’ strategy to focus on maximising its load at the expense of yield may seem painful, but the strategy appears to be bearing fruit with the group posting stronger operating cash flow of MYR480m in 2QFY13 vs MYR147m in 1QFY13. We are of the view that the airline is on the right track to break even by FY14.
- Expecting numbers to improve further. We expect MAS to report a further improvement in its operating statistics in 2HFY13, coinciding with the seasonal peak in air travel. Management has guided for a 20% h-o-h (+30% y-o-y) increase in capacity for 2H as the carrier deploys more aircraft to serve additional frequencies.
- High investment risks. The softening of the MYR against the USD, fluctuating jet fuel prices and the highly competitive operating environment are risks to MAS’ turnaround plans.
- Maintain NEUTRAL, FV unchanged. We are keeping our forecasts and valuation unchanged for now with our NEUTRAL call retained (FV: MYR0.34 derived from 9x adjusted FY14F EV/EBITDAR).
Publish date: 27/08/13