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Monday, July 29, 2013

Time to accumulate MAS, says Maybank Research (Star)

Malaysian Airline’s second quarter results, set to be released on July 31, are expected to still leave it in the red but should show strong improvements, said Maybank Research, as it upgrades the national carrier to Buy from Hold.

At 35 sen, its fair valuation remains unchanged, however, for the stock currently trading at around 31 sen.

Maybank Research said it was estimating core loss for the quarter at RM34.6mil against RM348.7mil for the corresponding quarter from the previous year. That would make for a year-on-year improvement of more than 78% and above 90% quarter-on-quarter.

“This strong improvement is due to higher load factors and a lower fuel price of US$124.4 per barrel. MAS should be profitable in the second of half of the year as it enters into its seasonally strong quarters of 3Q (strongest) and 4Q (second strongest) and benefits from lower operating cost from new aircraft induction,” it stated.

Operating statistics for the second quarter is remarkable, it added.

The airline’s passenger load factor surged by 6.6 percentage points from the previous year to 80.4%, while its cargo load factor increased by 1.5 percentage points to 72.8%. The overall load factor (passenger and cargo) was up by 4.9 percentage point to 77.9%.

“This is MAS’s best performance since inception,” the research house noted.

However, MAS’s second quarter yields are expected to decline by 4.5% year-on-year based on observation of other regional peers’ results and observation of published ticket fares. This is within expectation because MAS is embarking on a load-active, yield-passive strategy.

Now that the its loads target has been achieved, the national carrier should now focus on overturning its yield decline trend, commented Maybank Research, adding that it was time to accumulate the stock.

“The stock has plummeted by 23% since our Sell call at end of May. We think this is overdone as MAS’s current market capitalisation of RM5.1bil is roughly equal to its cash pile. We forecast MAS will be profitable in the second half and generate positive cash flow," it concluded.

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