FULLY VALUED RM0.34
KLCI : 1,745.42
Price Target : 12 month RM 0.30 (Prev RM 0.35)
Operating environment remains challenging
2Q13 net loss of RM239m below expectations
Competition from regional and domestic carriers exert downward pressure on yields
Increasing net loss projection for FY13F
Fully Valued with RM0.30 TP
Below expectations. Malaysia Airlines (MAS) recorded 2Q13 net loss of RM238.7m (excluding forex loss of RM68.3m and fair value gain on derivatives of RM5.6m) - below our expectations. This brings 1H13 net loss to RM500.5m (4% y-o-y improvement).
Operating performance improved as traffic and capacity increased 29% and 19% y-o-y respectively, resulting in higher load factor of 79%. However, yields continued on a downtrend, falling to 22.1 sen from 24.2 sen (-9%) in 1Q13 from intense competition. Operating expenses increased mainly due to higher handling and landing costs (+47% y-o-y) and higher fuel costs (+9% y-o-y) as a result of increased aircraft utilisation and use of larger aircraft. Despite RASK decreasing by 0.9 sen (-4% y-o-y) to 23.8 sen, MAS has managed to decrease CASK by 1.5 sen (-6% y-o-y) to 23.7 sen resulting in an operating profit of RM8m. Lower CASK was due to a decrease in staff costs (-5% y-o-y) as well as leasing and maintenance costs (-4% y-o-y).
Yields remain suppressed. We increased our net loss forecast for 2013 following the losses in 2Q13. Although there were some positive signs from the results, the operating environment remains challenging. Competition from regional and domestic carriers will likely continue to exert downward pressure on yields. As Malindo Air takes delivery of more aircraft, competition could intensify and result in further pressure on ticket prices.
Maintain Fully Valued. Our TP of RM0.30 (from RM0.35) is pegged to 1.1x BV, the lower end of its historical range, to reflect the challenging outlook. In our view, the Group needs to demonstrate consistent earnings delivery to ensure sustainable improvement in its share price.
Publish date: 21/08/13