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
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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.
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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.
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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
