Thursday, 1 March 2012

MAS (FV RM0.90 - SELL) FY11 Results Review: Mired in Losses


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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