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SELL MAS – The Worst Is Yet To Come

MAS Stock code 3784 3QFY11: The worst is yet to come
MAS reported another disappointing quarter with adjusted net losses of RM477.6m in 3QFY11.  The  main  culprit  was  the  37%  y-o-y  increase  in  fuel  cost  and  an  unrealized foreign  exchange  loss  of  RM195.1m.  We  maintain  a  SELL  recommendation  while  we are keeping our eyes open for the upcoming plans and initiatives to be released.


             Results highlights

  • 3QFY11 results came in lower than house and market expectations due to losses of RM477.6m on the back of high fuel cost. Together with losses in 1HFY11, YTD losses came up to RM1.2bn.
  • Fuel cost has increased by 37% y-o-y in 3QFY11 as the average jet fuel price has increased to USD125.2/bbl. The 4.5% q-o-q decrease in operating expenditure did not manage to reduce the net losses incurred. Although operating loss saw a sharp reduction q-o-q, MAS’s unrealized forex losses of RM195.1m kept it deep in the red.
  • MAS expects the 4QFY11 to be weaker than the current quarter as the supposedly seasonally strong 2HFY11 is expected to be disappointing, taking into consideration the high jet fuel price and the fragile global economic situation.

    Impact on estimates
  •   No change to estimate at this juncture. Impact on valuation and recommendation
  • We  have  yet  to  see  the  business  plan  for  MAS  along  with  the  Comprehensive Collaboration  Framework  (CCF)  between  MAS  and  AirAsia.  Until  these  initiatives surface and come into play, we reduce our target price from RM1.30 to RM1.00 per share which puts it on a current P/B valuation of 1.4x which is close to the trough valuation.
  • We maintain our SELL recommendation.
  • by HWDBS