Stock Name: MAS
Company Name: MALAYSIAN AIRLINE SYSTEM BHD
Research House: HWANGDBS
Malaysian Airline System Bhd
(Aug 17, RM2.20)
Maintain hold at RM2.28 with target price RM1.90: MAS' 2Q2010 core net loss ballooned to RM425.6 million, 72% higher than the RM248 million loss recorded in 1Q2010. Although passenger RPK and yield (passenger revenue per available seat kilometre) rose 4% and 2% respectively in 2Q2010, these could not offset the 8% increase in cost/ASK. While fuel cost/ASK was relatively flat quarter-on-quarter (at 10.3 sen), non-fuel cost/ASK (circa 65% of total cost) jumped 14% to 19.5 sen. This was due to higher maintenance costs and sales incentives. MAS also reported RM158 million combined net cash settlement on derivatives and premium paid on derivatives.
Going forward, we expect higher yields with recovering air travel demand. Yields continued to improve with 16% year-on-year growth in 2Q2010 against 22% y-o-y decline in 2Q2009. Although costs/ASK may improve with higher efficiencies as new aircraft are delivered from 4Q2010 onwards, earnings may still be hit by fuel hedging losses. As at end-2Q2010, MAS has hedged 60% of its fuel requirement at US$100/ bbl West Texas Intermediate for the rest of FY2010, and 40% at US$100/bbl for FY2011.
We look to cut FY2010F earnings by 44% given that 1H2010 core net loss of RM673.6 million already accounted for 88% of our full-year forecast. We maintain our RM1.90 target price based on 15 times CY2011F EPS. We also maintain our 'hold' call considering the expected longer term earnings turnaround in FY2011. We believe FY2010 remains challenging for MAS due to increasing pressures on yield. ' HwangDBS Vickers Research, Aug 17
This article appeared in The Edge Financial Daily, August 18, 2010.
Company Name: MALAYSIAN AIRLINE SYSTEM BHD
Research House: HWANGDBS
Malaysian Airline System Bhd
(Aug 17, RM2.20)
Maintain hold at RM2.28 with target price RM1.90: MAS' 2Q2010 core net loss ballooned to RM425.6 million, 72% higher than the RM248 million loss recorded in 1Q2010. Although passenger RPK and yield (passenger revenue per available seat kilometre) rose 4% and 2% respectively in 2Q2010, these could not offset the 8% increase in cost/ASK. While fuel cost/ASK was relatively flat quarter-on-quarter (at 10.3 sen), non-fuel cost/ASK (circa 65% of total cost) jumped 14% to 19.5 sen. This was due to higher maintenance costs and sales incentives. MAS also reported RM158 million combined net cash settlement on derivatives and premium paid on derivatives.
Going forward, we expect higher yields with recovering air travel demand. Yields continued to improve with 16% year-on-year growth in 2Q2010 against 22% y-o-y decline in 2Q2009. Although costs/ASK may improve with higher efficiencies as new aircraft are delivered from 4Q2010 onwards, earnings may still be hit by fuel hedging losses. As at end-2Q2010, MAS has hedged 60% of its fuel requirement at US$100/ bbl West Texas Intermediate for the rest of FY2010, and 40% at US$100/bbl for FY2011.
We look to cut FY2010F earnings by 44% given that 1H2010 core net loss of RM673.6 million already accounted for 88% of our full-year forecast. We maintain our RM1.90 target price based on 15 times CY2011F EPS. We also maintain our 'hold' call considering the expected longer term earnings turnaround in FY2011. We believe FY2010 remains challenging for MAS due to increasing pressures on yield. ' HwangDBS Vickers Research, Aug 17
This article appeared in The Edge Financial Daily, August 18, 2010.
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