Kenanga Research upgrades MAS to Market Perform, raises target price

by **Cals** Wed 09 Oct 2013, 12:04

Business & Markets 2013

Written by Jeffrey Tan of theedgemalaysia.com

Wednesday, 09 October 2013 11:36

KUALA LUMPUR (Oct 9): Kenanga Research has upgraded MALAYSIAN AIRLINE SYSTEM BHD [] to ‘market perform’ from ‘underperform’ at 34 sen with a higher target price (TP) of 35 sen (from 29 sen) in light of recently improved loads amid privatization media newsflow.

In a note today, the research house said it upgraded the national airline’s stock to ‘market perform’ although it reduced its earnings due to its previously over aggressive recovery assumptions.

Kenanga said the higher TP of 35 sen is based on 6.9 times FY14 enterprise value/EBITDAR ratio in line with AirAsia Bhd. Previously, TP was at 29 sen on a 10.5 times FY14 price earnings ratio (PER).

“We switched our valuation methodology from PER to EV/EBITDAR to better reflect its improving operation performances,” said the Kenanga research team.

“MAS’ year to date (Aug) load factor had seen significant improvement of 6.6 ppt to 80.2% from 73.6%.”

Kenanga said its passenger numbers improved 27% as MAS had carried 10.9 million passengers from the previous 8.6 million, driven by its aggressive promotional activities for both its domestic and international routes.

“However, we expect a longer time-frame for the management to iron out its cost issues before MAS turned profitable. Now our TP carries earnings risks as their bottomline remains volatile,” remarked the research house.

In addition, the research house said that it reduced its FY13E-FY14E estimates to net loss of RM693.2 million and RM293.9 million.