THE BUZZ
Malaysia Airlines (MAS) has scrapped its plan for a regional
premium airline but is going ahead with its short-haul operations. The national
carrier said yesterday the decision to drop the premium airline plan was part
of a business model review. MAS group deputy chief executive officer Mohammed
Rashdan Mohd Yusof will no longer head the shorthaul operation. MAS said the
business plan it unveiled last December was very much intact and no other
changes have been made.
OUR TAKE
As anticipated. We are not surprised with this
piece of news following the national carrier’s failure to seal a partnership with Qantas to set up a
regional premium airline. Furthermore,
given the likelihood of a downgrade in its Skytrax rating, this would have put
MAS in an even more difficult position to sell the premium concept.
Maintain SELL. We make no changes to our earnings estimates
as we have not factored in the potential
setting up of the proposed
regional premium airline. We maintain
our SELL call on MAS, with our FV unchanged at RM0.90, based on an EV/EBITDA of 8x FY13. Our greatest
concern is how much cash burn to expect in the immediate term since the airline
has just one and a half months to finalize plans to raise funds and strengthen
its balance sheet. We see an equal chance of the carrier calling for a rights
issue or issuing a sukuk debt as its credit facilities dry up.
Source: OSK188
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