Smooth flight for MAS in 3Q

by **Cals** Mon 28 Oct 2013, 13:39

Business & Markets 2013

Written by RHB Research

Monday, 28 October 2013 10:32

Malaysian Airline System Bhd
(Oct 25, 35 sen)
Maintain neutral at 35 sen with a fair value of 34 sen: MAS continued to record promising operating statistics, with its September overall load factor coming in at 81.1% (+1.9% month-on-month [m-o-m], +7.7% year-on-year [y-o-y]).

In the nine months ended Sept 30 of 2013 financial year (9MFY13), its overall passenger capacity expanded 16.8% y-o-y while revenue passenger kilometres (RPK) grew at a faster 27.9% y-o-y. The load factor for the airline’s international flights stood at 81.5% (+7.4% y-o-y) in 9MFY13, mainly attributed to what we believe is its participation in the oneworld alliance.

These improvements are in line with management’s strategy to turn around by increasing the carrier’s capacity and applying a “load active, yield passive” strategy to improve profitability.

The government has declared 2014 as Visit Malaysia Year in its effort to promote the country as a major tourist destination, and this will boost passenger traffic.

Although all airlines, including MAS, may continue to face challenges in the pricing of airfares, the high passenger traffic will complement MAS’ strategy to fill up its aircraft. While we do not expect to see exponential growth in earnings, the high passenger traffic will still translate into high load factor for MAS and hence, enhance the carrier’s profitability.

Fluctuations in foreign currency rates as well as jet fuel price, together with a competitive operating environment, are key risks to MAS’ turnaround plans.

For now, we maintain our “neutral” stance on MAS, with our fair value of 34 sen, derived from an unchanged 9 times adjusted FY14 enterprise value/earnings before interest, tax, depreciation and amortisation.

We are of the view that management is on the right track in its strategy to boost MAS’ profitability and help the carrier potentially break even by FY14 as per management guidance. — RHB Research, Oct 25

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This article first appeared in The Edge Financial Daily, on October 28, 2013.