Malaysia Airlines - 3Q12 results above expectations

Period    3Q12/9M12

Actual vs.  Expectations   The 9M13 core net loss of RM664m came in below the consensus but was above our estimates at 86% and 54% of the consensus and our full year FY12 net loss expectations of RM764m and RM1.2b respectively.  The better than expected set of results was attributable to a higher load factor and higher fuel surcharges imposed as compared to our expectations. 

Dividends   No dividend was declared as expected. 

Key Result Highlights   The 9M12 core net loss of RM664m was far better than 9M11’s core net loss of RM1.0b, thanks to fuel surcharges, which were introduced in early FY12. The results also saw RM140m in exceptional gains on FOREX (RM93m) and Airbus LAD (RM47m). Its RASK improved by 10% but the yield was stubbornly unchanged due to the high operating cost (CASK increased by 7.1% YoY)

 YoY, the 3Q12 core net loss of RM102m came in at half of the previous quarter’s core net loss (RM205m). This was due to the lower fuel and other operating cost. In addition, the lower core net loss was helped by higher fuel surcharges (>100%) and a marginal increase in the CASK (+0.2%) as the management had streamlined some of its operational costs i.e. staff cost and advertising.  

 QoQ, the 3Q12 revenue slid by 5% while its core net loss shrank by 56%. This was due to the higher number of passengers carried (26%) during the quarter, a higher RPK by 20% and also additional fuel surcharges.

Outlook   We believe that with the new fleet in operation, MAS will be able to make a meaningful turnaround. However, in the near term, any positive share price movement is likely to be muted due to the negative sentiment on its proposed capital reduction and rights issue announcement. 

Change to Forecasts    We are raising our FY12E estimate higher by 30% and are introducing our RM482m core net profit for FY13E as we expect MAS will be able to recover its yield and get a higher load via the new fleet.  

Rating  Upgrade to MARKET PERFORM

 We are upgrading MAS to a MARKET PERFORM as it has addressed the funding issue on its new fleet plan, i.e. via SUKUK issuance and rights issue now.

Valuation    We are maintaining our TP at RM1.06 based on 8x PER FY13 (a 20% discount to its peers). We think the discount is justifiable due to the potential weak sentiment on MAS shares in the near term arising from the proposed rights issue.

Risks   A global recession and sharp spike in crude oil price.   

Source: Kenanga