Malaysia Airlines - UNDERPERFORM - 23 May 2012

Period   1Q12

Actual vs. Expectations

The 1Q12 core net loss of RM356.6m came in higher than our forecast and that of the consensus.

The net loss already made up 32% of our full year  FY12 core net loss forecast of RM1,096.4m and 83% of the consensus’ loss estimate of RM426m.

Dividends  No dividend was declared.

Key Result Highlights

QoQ the core net loss was reduced from RM1,012.3m to RM356.6m due to cost savings from the management initiatives to reduce capacity via the cutting of unprofitable routes.

YoY revenue dropped slightly by 3% and its core net loss increased 1% to RM356.6m. Total cost has only reduced by 0.9% as compared to a 8% reduction in capacity (ASK). This is due mainly to a 6.9%-increase in staff cost arising from a salary increment. 

A redelivery cost of RM6.8m was recognised during the quarter but there could be further provisions required in the later part of the year.  

Outlook  Remains weak. We do not expect a strong recovery for MAS in FY12 even with its new fleet i.e. A380, which is expected to somewhat enhance its revenue base and hence reducing its loss as compared to FY11 core loss of RM2.0b.

MAS has proposed a ‘Funding Plan’ to raise cash of at least RM2.5b for its working capital. At the same time, MAS has also proposed an Islamic Asset Backed Securities (ABS) Issuance, which is sponsored by Ministry Of Finance (MoF), through a SPV, amounting to up to RM5.3b for the purpose of capex usage. 

Change to Forecasts

We have raised our loss forecast higher by 13% to RM1.2b as we have factored in the additional finance cost arising from its Funding Plan.  

We have also factored in the potential assets capitalisation in our forecast as the proposed ABS will results in MAS owning the aircraft.  

Rating  MAINTAIN UNDERPERFORM

Our UNDERPERFORM rating is maintained due to the limited upside to the current share price.

Valuation   Lowering down our TP to RM1.02 (previously at RM1.05). We have also changed our valuation base from  Price  to  Sales  (PTS)  to  1.0x  NTA  FY12  as  we capitalised the new assets in our forecasts following the proposed Funding Plan. 

Risks  Global economy in recession.   

Source: Kenanga