MAS turnaround plan fails to excite analysts

by **hlk** Fri 09 Dec 2011, 08:04

There are many issues to sort out within one year and it will take time to turn around the fortunes of the ailing national carrier, says HwangDBS Vickers

KUALA LUMPUR: Malaysian Airline System Bhd's (MAS) business turnaround plan does not excite most analysts as it failed to address some key issues.

"There are many issues to sort out within one year and it will take time to turn around the fortunes of the ailing national carrier," HwangDBS Vickers Research said in a report yesterday.

HwangDBS Vickers has downgraded its recommendation on MAS to "fully valued" from "hold" previously.

It also lowered its target price to RM1.10, from RM1.35 earlier.

The national carrier, which posted a net loss of RM1.25 billion for the nine-months ended September 30 and foresees further losses this quarter, expects to be profitable again by 2013 with a series of cost-cutting measures.

It expects a net loss of about RM165 million next year.

MAS said the cost-cutting measures can help generate between RM1.12 and RM1.51 billion cash through several measures. They include suspending unprofitable routes early next year and spinning off some ancillary businesses such as cargo and ground services.

"Overall, the business plan was not a surprise as most of the initiatives outlined were mentioned during the recent quarterly result briefing," said an analyst from a local brokerage.

While it is seeking a strategic partner to help expand its profitable maintenance and repair business, MAS is also looking to launch a new premium airline by the second half of next year.

The new carrier will link Malaysia with Asean , South Asia and Greater China.

It also has started talking to AirAsia Bhd on joint procurement and operation consolidation initiatives.

Although these proposed initiatives could help MAS cut cost and return to profitability, analysts stressed that execution of the plan remains a key challenge.

They said one of the issues the MAS management did not discuss was how it plans to solve the issue of over-employment.

The management did not hint if it will reduce its workforce, they added.

Some analysts are doubtful if the cost-saving goals could be met without reducing staff strength.

"We felt that MAS is attempting to effect a painless restructuring (without headcount reduction, for instance) according to its business turnaround plan revealed yesterday.

"We doubt if this could produce the targeted results, i.e. RM1.2 billion-1.5 billion positive swing in performance from a RM1.2 billion net loss projected by analysts in FY11 to a mere RM165 million net loss to a RM238 million net profit in FY12," RHB Research said.

The firm has an "underperform" recommendation and a RM1.04 target price on MAS.

So far this year, MAS share price has fallen by more than one third. It closed 10 sen lower at RM1.34 yesterday.

Analysts in general remained negative on the stock, with more than 60 per cent placing a "sell" call.

R