FULLY VALUED RM0.345
Price Target : 12 month RM 0.30
Yields drop amid intense competition
• Competition is driving yields lower
• Oneworld Alliance lifts passenger numbers
• Maintain Fully Valued rating with RM0.30 TP
Yields under pressure. Intense competition from regional and domestic carriers has reduced yields to 22.1 sen/RPK (-9% q-o-q) in 2Q13. MAS managed to reduce Cost/ASK by 1.5 sen or -6% y-o-y to 23.7 sen, mainly due to lower staff costs of RM553m (-5% y-o-y) and lower leasing and maintenance costs of RM592m (- 4% y-o-y). This was offset by higher handling and landing costs of RM364m (+47% y-o-y) and higher fuel costs RM1,389m (+9% y-o-y) as a result of increased aircraft utilization and use of larger aircraft.
Oneworld Alliance lifts international pax. MAS’s entry into the alliance has had a positive impact with international passengers up 40% y-o-y to 5.5 million and domestic passengers up 19% to 2.8 million. These took total passengers to 8.4 million (+32% y-o-y) in 1H13. RPKs outgrew ASKs (23% vs 15%), resulting in a higher load factor of 79%. But with expected lower yields and costs still sticky, we increased forecast net loss to RM109m for FY13F, and reduced net profit for FY14/15F by 25%/10%.
Maintain Fully Valued with RM0.30 TP. This is pegged to 1.0x FY14F P/BV, the lower end of its historical range, to reflect the challenging outlook. The continuous pressure on yields is worrying. The Group needs to demonstrate consistent earnings delivery to ensure sustainable improvement in the share price.
Publish date: 03/10/13