Year Low: 0.995
MAS’ 1QFY12 core loss narrowed by 72% y-o-y to RM141m. More positively,
EBITDA came in at RM46m, its first positive since 4QFY10. This improved
bottomline was due to its 12% capacity cuts, notably from its non profitable
routes, which had improved aircraft utilization and yields overall. Feeling more
positive about the company, we are upgrading MAS to BUY (from TRADING BUY)
with our FV unchanged at RM1.38. based on 7.5x FY14 EV/EBITDA.
Capacity and cost cuts proven successful. MAS 1QFY12 core loss of RM141m
represents a sharp contraction of 65% q-o-q and 72% y-o-y (1H down by 38% y-o-y) as
expenses came down by 4% and 16% respectively. Its earnings were in line with our
projections but below consensus’. For the quarter, there was a total of RM208m in net
non-recurring expenses, whereby the fair value movements of its derivative and forex
instruments mitigated by the RM45m in compensation from Airbus for the late delivery of
its A380s. The improved bottomline was due to its 12% capacity cuts, notably from its
non profitable routes, which improved overall aircraft utilization and yields. MAS
passenger yields were up by 9% YTD although cargo yields were lower by 1% due to
the tough economic environment. The improvement on MAS’ unit revenue and costs
resulted in a sharp drop in its overall breakeven load factor by 6ppts YTD to 94%.
Earnings inline; seeing a better 2H. MAS’ EBITDA came in at RM46m in Q2, its first
positive EBITDA since the RM257m registered in 4QFY10. This is positive in boosting
investor confidence as its turnaround story gains traction. With its YTD EBITDA loss at
only RM182m so far and in anticipation of a stronger load and yields in the 2H, we see
MAS possibly chalking an EBITDA of RM34m for this year. Load factor has notched
lower by 2ppts to 73.4% YTD due to a challenging outlook. Nonetheless we remain
positive as earnings will be driven by cost cuts and higher yields after rationalizing its
routes. Going forward, the arrival of its new aircrafts will also reduce fuel burn. We have
yet to see this since its fuel burn on per unit load tonnage KM still nudged higher by 10%
q-o-q in 2Q due to the ongoing route rationalization. For the 1H, MAS has successfully
trimmed costs across all levels (ex fuel costs down 10% YTD), notably on its sales
commissions and from maintenance and handling as man hour costs improves.
Management reminded that there is still room for cost cuts as aircraft utilization improves
further with the bigger capacity aircrafts coming in.
Turning more positive. Upgrade to BUY. As we are feeling more positive about MAS’
turnaround story, we are upgrading the stock to BUY (from TRADING BUY) with our FV
unchanged at RM1.38, premised at 7.5x FY14 EV/EBITDA. Our call is a non consensus
buy call since May. While there is still a lot more that needs to be done to bring in
consistent profits, we see sentiment turning more positive for the counter as the carrier
undergoes a turnaround, slowly but steadily.