Malaysia Airlines - FY12 within expectations

Period  4Q12/12M12

Actual vs. Expectations  FY12 core net loss came in above our expectations but within the consensus. This is due mainly to better than expected loads and yield driven by the new fleet.

Dividends  No dividend was declared as expected.

Key Result Highlights  The FY12 core net loss of RM773m was better than our full year loss forecast of RM865m. This was mainly due to a lower than expected operating cost i.e. a reduction in its staff and fuel costs. However, the yield was still stagnant at 26sen. The loads were decent at 74% as compared to last year’s 75%. It has also received RN92m LAD from Airbus for the late delivery of A380.MAS will be receiving c.16 new aircrafts throughout the year.

 YoY, the core net loss was reduced from RM1.0b to RM109m due to a reduction in capacity and lower operating costs. The ASK was reduced by 7% as MAS had been undergoing routes rationalisation process since last year. We expect this to continuein FY13 as MAS will be retiring more than 18 aircraft this year while taking delivery of 16 new aircraft. The loads were still low (below 80%) during the quarter despite it being a seasonally strong quarter for airlines.

 QoQ, the sequentially strong top line growth by 10% was due to the higher fuel charges being offset by better ticket sales. The core net profit fell only at 6% as compared to the increase in jet fuel by 10%.

Outlook  MAS will be able to enjoy better loads and cost efficiency with its new aircraft and we expect this to help its bottom line to improve by FY13. However, the risk of the possible price competition from Malindo and a spike in jet fuel will remain as the threats to MAS.

Change to Forecasts  No material changes in our FY13 earnings forecasts.

Rating    Maintain MARKET PERFORM

 We are maintaining our MARKET PERFORM rating due to the limited upside for the share price and the weak sentiment on its rights issue.

Valuation  We are maintaining our TP at RM0.77 based on 9.0x FY14 PER.

Risks  Global recession and a sharp spike in crude oil prices.

Source: Kenanga