HLG: 21 May 2008 Malaysian Airlines System - Q108 results hit by high oil prices
Malaysian Airlines System BUY
Price target RM5.50
Share price at 20 May RM3.70
Investment summary
Annualized, Q108 net profit of RM120m was 35-40% below HLG/consensus estimates, partly due to seasonality but mostly due to an unanticipated recent surge in fuel prices. We cut our FY08-10E EPS forecast by 30% and DCF-derived price target by 21%, but remain bullish on MAS. (1) attractive FCF yield of 10% and cash backing of RM2.41/share (2) normalised pre-tax margins of 4% is low by regional standards (SIA 13-14%) and increase in yield creates a disproportionately strong EPS growth (3) -24% share price YTD has fully discounted the growing competition from low cost carriers and global macro threats (jet fuel prices, economic slowdown).
Fuel risk priced-in
Q108 earnings were a big disappointment due to fuel prices, but we think MAS’ bargain valuations (4x FY08 ex-cash PE) already prices this in.
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Saturday, 21 June 2008
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