Stock Name: MAS
Company Name: MALAYSIAN AIRLINE SYSTEM BHD
Research House: RHB
Malaysian Airline System Bhd
(March 2, RM1.82)
Maintain underperform at RM1.86 with fair value of RM1.91: MAS guided for a two sen increase in yields in FY11, driven by its ability to roll out higher-yielding product offerings with more new aircraft coming into the system as well as various operational initiatives such as: (i) The migration to a new revenue management system; (ii) Re-positioning of its regional managers to Kuala Lumpur; (iii) The distribution among MAS ticket offices around the world of flight seats via a 'bidding' process rather than a fixed allocation as previously; and (iv) Beefing up the high-yielding medium-haul sectors.
MAS reiterated that it has no plan for another cash call over the next one to two years as a strong balance sheet, positive operating cash flow, coupled with the availability of options to lease and/or enter into sale-and-lease-back agreements should take care of new aircraft delivery funding.
We maintain our forecasts. Upside risks to our view include: (i) a stronger than expected rise in MAS' yields; (ii) lower jet fuel cost; and (iii) effective containment of outbreaks of pandemic diseases.
MAS has addressed its key concern ' the inability to grow its yields ' via a comprehensive fleet renewal programme. However, it will take a few years before all the aircraft are delivered and commissioned.
The recent turnaround in the global aviation sector could also be cut short as the surging crude oil prices on the back of the unrest in North Africa and the Middle East could throw a spanner in the works. MAS has only hedged forward 25% of its FY11 fuel requirements at US$88/bbl WTI.
For every US$1/bbl increase in jet fuel cost (against our assumption of US$95/bbl), MAS's FY11 net profit will be eroded by 7%. Indicative fair value is RM1.91 based on 14 times FY11 earnings per share, in line with its nearest comparable issue, Singapore Airlines Ltd. ' RHB Research, March 2
This article appeared in The Edge Financial Daily, March 3, 2011.
Company Name: MALAYSIAN AIRLINE SYSTEM BHD
Research House: RHB
Malaysian Airline System Bhd
(March 2, RM1.82)
Maintain underperform at RM1.86 with fair value of RM1.91: MAS guided for a two sen increase in yields in FY11, driven by its ability to roll out higher-yielding product offerings with more new aircraft coming into the system as well as various operational initiatives such as: (i) The migration to a new revenue management system; (ii) Re-positioning of its regional managers to Kuala Lumpur; (iii) The distribution among MAS ticket offices around the world of flight seats via a 'bidding' process rather than a fixed allocation as previously; and (iv) Beefing up the high-yielding medium-haul sectors.
MAS reiterated that it has no plan for another cash call over the next one to two years as a strong balance sheet, positive operating cash flow, coupled with the availability of options to lease and/or enter into sale-and-lease-back agreements should take care of new aircraft delivery funding.
We maintain our forecasts. Upside risks to our view include: (i) a stronger than expected rise in MAS' yields; (ii) lower jet fuel cost; and (iii) effective containment of outbreaks of pandemic diseases.
MAS has addressed its key concern ' the inability to grow its yields ' via a comprehensive fleet renewal programme. However, it will take a few years before all the aircraft are delivered and commissioned.
The recent turnaround in the global aviation sector could also be cut short as the surging crude oil prices on the back of the unrest in North Africa and the Middle East could throw a spanner in the works. MAS has only hedged forward 25% of its FY11 fuel requirements at US$88/bbl WTI.
For every US$1/bbl increase in jet fuel cost (against our assumption of US$95/bbl), MAS's FY11 net profit will be eroded by 7%. Indicative fair value is RM1.91 based on 14 times FY11 earnings per share, in line with its nearest comparable issue, Singapore Airlines Ltd. ' RHB Research, March 2
This article appeared in The Edge Financial Daily, March 3, 2011.
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