Current price (MYR):0.31
Target price (MYR):0.29
No Clear Strategy Just Yet
Subdued 2013. MAS’ 9M13 core net losses widened by 53.6% YoY to MYR766.7m due to weak yields. MAS has deployed 17% capacity growth in 9M13, which was a massive oversupply to the market. This has forced it to drop its yields by an average of 12.8% in 2013-YTD, in order to fill up its seats and also gain market share.
Business significantly repaired. MAS have undertaken major reforms to its business. Among the notable ones are: 1) terminated underperforming routes; 2) rejuvenate its fleet by removing old aircraft and replace with new ones – MAS’ average fleet is < 8 years, on par with Cathay and SIA; and 3) simplified operations and focus on higher utilization. This has helped MAS to deliver stellar load factors, good on-time performance and positive reviews from customers.
2014 will improve, but remains in the red. MAS will achieve further unit cost reduction thanks to the disposal of old aircraft from the fleet and higher utilization rate. Some of the routes will mature with better yield outlook and will start contribute to the Group. However, most of these benefits will only be enjoyed in 2H14; the outlook for 1H14 remains grim and loss making. On a full year basis, we think MAS will still be loss making, but the quantum has significantly improved compared to the levels achieved in 2013.
Upgrade to HOLD. The share price has been down 10.1% since our SELL call on 19 Nov 2013, and the stock is now close to our target price of MYR0.29/share. Despite our upgrade, we advise clients to stay on the sideline because we are uncertain about the Company’s turnaround initiatives, and we think it will only be profitable in 2015, at best.
Publish date: 02/01/14