MAS undertook massive
kitchen sinking in 4Q, dragging its full year losses to RM2.52bn (core net
loss was RM1.94bn). The provisions will allow MAS to start on a clean slate.
More encouragingly, yields improved to the highest achieved since 1QFY09. As the airline’s route rationalization progresses,
we expect yields to mend further.
One concern now is how MAS can survive with its RM1bn cash on hand without
prompting a cash call since
air travel is weaker in the
second half and jet fuel prices remain high. We raise our estimated loss
for FY12 and cut our FY13 forecast, which lead to a lower FV of RM0.90, based
on an EV/EBITDA of 8x FY13. Maintain SELL.
Kitchen sinking.
MAS’ Q4FY11 core loss stood at RM980m, with a full year core net loss of
RM1.94bn vs the RM314.7bn loss in 2010. If not for the kitchen sinking, MAS’
full year loss would have been in
line with our estimate but slightly below consensus. In 4QFY11, it
undertook a major kitchen sinking exercise by making provisions relating to aircraft
redelivery costs (RM602m) and one-off provisions for impairment and obsolescence
of engineering spares (RM179m), and an impairment on aircraft of RM314m. Since
these were for potential cash costs to be incurred in the future as 34 of its
aircraft will be returned to its lessor
this year, we deem the costs non
exceptional. Hence any future writebacks relating to these hefty provisions
would also be seen in the same light. After the provisions, MAS would be able
to start on a clean slate.
How MAS did on the
yield front. FY11 revenue was spot
on within our estimate, improving sequentially by 3.7% q-o-q although this was
lower by 7.9% y-o-y due to capacity cuts and the lower revenue from the
airline’s cargo and other divisions. To date, MAS has cut capacity by 9% in
consolidating its route network, with another 5% more to go. The 4Q yield of
26.5 sen was an improvement and the highest MAS has achieved since 1QFY09,
rising by 3.9% q-o-q and 9.1% y-o-y. For the full year, yields were still higher
by 3.4% y-o-y at 24.7 sen. As a comparison, AirAsia’s and SIA’s yields over the
same period came in at 22.6 sen (q-o-q: 6.4%, thanks to Firefly’s withdrawal)
and 30 sen (converted to RM, up by 3.4% q-o-q, but barely unchanged y-o-y and
YTD). We expect the carrier to make more yield improvements moving forward.
Surviving, but for how
long? Our greatest concern now is
how much cash burn to expect in the
immediate term as MAS’ net debt crept up from RM3.6bn in 9MFY11 to RM4.6bn in
FY11 The airline may also see its RM1.1bn cash deplete by RM200m per quarter
over the upcoming 2 quarters when travel is at a seasonal low and jet fuel
prices remain high. Its pre-delivery
payment of RM1bn will only be refunded once
MAS has secured financing for its
5 A380s, due to be delivered in 2H, for which management is still negotiating
with the ECA. There is high risk of the group making a cash call as its funding options dry up,
unless it offers convertible bonds to entice its creditors.
Source: OSK188
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