Malaysian Airline System -
A Smoother Flight
Malaysia Airlines’ (MAS) 2QFY13 results came in stronger as we expected, although it was still in the red. The airline’s more robust operating stats boosted its to and bottom lines. MAS will continue to focus on its revenue growth to improve profitability. As our new earnings forecasts are prompted by its EBITDA shortfall, we derive a new MYR0.34 FV and downgrade MAS to NEUTRAL.
- Numbers have improved. MAS reported a 2QFY13 core net loss of MYR200.5m (-41.1% q-o-q , -3.0% y-o-y), were largely within our and street’s expectations. Despite reporting a net loss for the quarter, it posted positive EBITDA of MYR119.6m vs a loss of MYR60.5m in 1QFY13. The improvement was mainly attributed to: i) stronger operating stats, ii) improved cost per ASK (CASK), and iii) a higher aircraft utilization rate.
- Revenue in focus. MAS’ strategy moving forward is to focus on improving its topline by growing capacity by increasing the utilization of its aircraft. Management believes that as long as the revenue growth is stronger than its costs, the bottomline should gradually improve. We think the strategy has yielded positive outcomes as MAS chalked up a remarkable MYR480m in positive operating cash flow in 2QFY13.
- Revising our forecast. We are revising our earnings model as we had previously been too bullish on the group’s EBITDA although earnings had been in line. We are now revising higher our available service kilometer (ASK) and load factor forecasts, in line with MAS’ strategy in boosting load factor under the current challenging operating environment. Our forecasts are revised lower to a MYR367m loss (from MYR248m) for FY13 and a net profit of MYR120m (from MYR164m) for FY14.
- Risks. We believe the key risks include the drastic compression of airfares, drop in load factors, and volatility in jet fuel price and foreign currencies.
- Downgrade to Neutral. We maintain our valuation parameter at 9x adjusted FY14F EV/EBITDAR. Following revisions to our earnings forecasts, MAS’ FV has been lowered to MYR0.34 (from MYR0.43). Accordingly, we downgrade MAS to NEUTRAL (from Trading Buy).
Publish date: 21/08/13