MAS - Dragged down by passenger division (CIMB)

Dragged down by passenger division; reiterate UNDERPERFORM. The main point we took away from yesterday’s viewing was that MAS’s new A330-200F (A330F) is definitely the top of its class, providing not only the lowest cost but flexibility to maneuver through various business needs. This aircraft is one of four that will be joining MAS’s fleet by 2012. While MAS’s bid to refresh its cargo fleet is positive, we highlight that global cargo capacity has expanded despite demand declining in the past year due to slowing growth in developed countries. We remain negative on MAS’s prospects because although its cargo segment is currently profitable, its passenger business is expected to continue suffering large losses. We maintain our earnings forecasts, target price of RM1.60 and UNDERPERFORM call. Potential derating catalysts include wider-than-expected losses in 2H11. We prefer AirAsia for exposure to the airline sector.