Wednesday, February 24, 2010

Malaysian Airlines (MAS)-HwangDBS

Malaysian Airlines
(Upgrade from Fully Valued)
Price Target : 12 m RM 1.90 (Prev RM 1.80)

Brighter longer term outlook
• 4Q09 = core -RM287.4m (vs -RM407.2m in 3Q09),
• FY09 = core -RM2.3bn.

Stronger cargo contribution helped cushion losses.
Cargo yield = 61.9 sen, +26% q-o-q
Load tonne kilometres (LTK) =634 mil km +14% q-o-q to 634
Operating profit in 4Q09 = RM22.3m (-RM36.9m in 3Q09)

Passenger yield (Rev/RPK) = 17.7sen flat q-o-q, -18% y-o-y
Load factor =76.5%

Expect MAS to return to black in FY11F. We expect the industry to experience stronger recovery next year as global economy improves. Hence, we believe MAS will be able to pass on part of its jet fuel costs through higher fares and fuel surcharge as demand picks up, while also improves its load factor after a few years of capacity cuts. We then raised FY11F earnings by 113% to RM418.2m after raising our passenger yield (revenue/RPK) assumptions close to pre-crisis level (i.e. from 20.1sen to 23.3sen) and load factor (from 72% to 76%). We have also imputed the latest fuel hedging position of 40% at US$100/barrel of crude oil (from 88% at US$100/barrel).

Upgrade to Hold. We believe FY10 will still remain a challenging year due to pressures on yield. However, we upgrade our call to Hold, considering the longer-term earnings turnaround in FY11 and bombed out share price (18% drop YTD). We changed our valuation method to PE basis from P/B to take into account the expected positive earnings going forward. The stock is trading at 15.2x CY11F EPS (ex-EI) and 4.1x FY11F BV (ex-mark-to-market gains/losses), compared to peers’ 13.5x and 1.6x.

MAS also reported RM170.3m realised derivative expenditure/losses, slightly lower than RM210.6m reported in 3Q09. This was mainly related to its fuel hedging instruments. Excluding this, MAS would have recorded RM117.1m core net loss in 4Q09.

Losses may continue in FY10F. We downgrade FY10F to RM766.2m core net loss (from RM180.4m net profit previously) mainly after raising our crude oil price assumptions to US$80/ barrel (from US$75) based on our house forecast and factoring in latest fuel hedging position of 60% at US$100/barrel of crude oil (vs 40% at US$100/barrel). These are partly mitigated by projected higher yield and load factor as we expect air travel demand to gradually pick up this year. Our forecast also includes the impact of 1-for-1 rights issue (proposed in Dec 09), which is targeted to complete by 1Q10.

FY10F passenger yield and load factor raised to 21.8sen and 71% respectively (from 20.1sen and 68%) as we expect air travel demand to gradually improve this year. However, the wild card remains on the cost of purchasing new hedging instruments (as the Group strives to meet its competitive hedging policy), which could potentially swing our earnings forecasts. We have assumed RM150m each year in FY10F- 11F.

It’s a volume game – for now. Although demand is likely to be on the uptrend, yields also need to improve to pass on rising jet fuel prices. We expect price war to continue among airlines, especially between MAS and AirAsia, considering that demand is still relatively fragile as depicted by current weak yield. We believe that the key indicator for real recovery is the improvement in yield to the level where airlines could pass on their jet fuel costs. While MAS had shown improvement, the yields are still lower y-o-y and we only expect it to recover to pre-crisis level next year.

MAS’ yield should be better this year but unlikely to touch pre-crisis level. We do not expect dramatic improvement in yield this year considering that growth may be partly dampened by additional capacity coming into the market, which could further intensify price war, in our view. Apart from AirAsia having more new aircraft coming into the local and regional markets, MAS is also set to be receiving its first B737 this year. However, MAS has the flexibility to expand or reduce its capacity depending on the market conditions.

Tuesday, February 23, 2010

Warren Buffett's Worst Mistakes -3

Warren Buffett's Worst Mistakes -3

Monday, February 22, 2010

Buffett says: "A truly great business must have an enduring "moat" that protects excellent returns on invested capital."

Mistake: Investing in a company without a sustainable competitive advantage - Dexter Shoes

In 1993, Buffett bought a shoe company called Dexter Shoes. Buffett's investment in Dexter Shoes turned into a disaster because he saw a durable competitive advantage in Dexter that quickly disappeared. According to Buffett, "What I had assessed as durable competitive advantage vanished within a few years." Buffett claims that this investment was the worst he has ever made, resulting in a loss to shareholders of $3.5 billion.

Lesson Learned

Companies can only earn high profits when they have some sort of a sustainable competitive advantage over other firms in their business area. Wal-Mart (WMT) has incredibly low prices. Honda (HMC) has high-quality vehicles. As long as these companies can deliver on these things better than anyone else, they can maintain high profit margins. If not, the high profits attract many competitors that will slowly eat away at the business and take all the profits for themselves.

Warren Buffett's Worst Mistakes-2

Warren Buffett's Worst Mistakes -2

Monday, February 22, 2010

Buffett : "Investors have poured money into a bottomless pit, attracted by growth when they should have been repelled by it."

Mistake: Confusing revenue growth with a successful business - U.S. Air

Buffett bought preferred stock in U.S. Air (LCC) in 1989 -- no doubt attracted by the high revenue growth it had achieved up until that point. The investment quickly turned sour on Buffett, as U.S. Air did not achieve enough revenues to pay the dividends due on his stock. With luck on his side, Buffett was later able to unload his shares at a profit. Despite this good fortune, Buffett realizes that this investment return was guided by lady luck and the burst of optimism for the industry.

Lesson Learned

As Buffett points out in his 2007 letter to Berkshire shareholders, sometimes businesses look good in terms of revenue growth but require large capital investments all along the way to enable this growth. This is the case with airlines, which generally require additional aircraft to significantly expand revenues. The trouble with these capital-intensive business models is that by the time they achieve a large base of earnings, they are heavily laden with debt. This can leave little left for shareholders and makes the company highly vulnerable to bankruptcy if business declines.

Warren Buffett's Worst Mistakes-1

Warren Buffett's Worst Mistakes

Monday, February 22, 2010

Warren Buffett is widely regarded as one of the most successful investors of all time. Yet, as Buffett is willing to admit, even the best investors make mistakes.

There is much to be learned from Buffett's decades of investing experience

Buffett : "When investing, pessimism is your friend, euphoria the enemy."

Mistake: Buying at the wrong price -Conoco Phillips

In 2008, Buffett bought a large stake in the stock of Conoco Phillips (COP) as a play on future energy prices. I think many might agree that an increase in oil prices is likely over the long term and that Conoco Phillips will likely benefit. However, this turned out to be a bad investment, because Buffett bought in at too high of a price, resulting in a multibillion-dollar loss to Berkshire. The difference between a great company and a great investment is the price at which you buy stock, and this time around Buffett was "dead wrong." Since crude oil prices were well over $100 a barrel at the time, oil company stocks were way up.

Lesson Learned

It's easy to get swept up in the excitement of big rallies and buy in at a prices that you should not have -- in retrospect. Investors who control their emotions can perform a more objective analysis. A more detached investor might have recognized that the price of crude oil has always exhibited tremendous volatility and that oil companies have long been subject to boom and bust cycles.
Warren E. Buffett(沃伦•巴菲特)
Be fearful when others are greedy, and be greedy when others are fearful
别人贪婪时我恐惧, 别人恐惧时我贪婪
投资只需学好两门课: 一,是如何给企业估值,二,是如何看待股市波动
吉姆·罗杰斯(Jim Rogers)

乔治·索罗斯(George Soros)



高估期间, 卖对, 不卖也对, 买是错的。
低估期间, 买对, 不买也是对, 卖是错的。

Tan Teng Boo

There’s no such thing as defensive stocks.Every stock can be defensive depending on what price you pay for it and what value you get,
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