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.
Custom Search
Showing posts with label Mas. Show all posts
Showing posts with label Mas. Show all posts
Saturday, 21 June 2008
Tuesday, 1 April 2008
HLG: 1 Apr 2008 Malaysian Airlines - Buying up to 55 B737-800 aircraft
Malaysian Airlines BUY
Price target RM7.00
Share price at 31 Mar RM3.54
Investment summary
MAS announced the purchase of up to 55 Boeing narrow-body planes valued at USD4.2bn at list price and agreed with Airbus on compensation and new delivery timetable for the 6 A380. We believe yesterday’s order for narrow-body aircraft and impending decision on wide-body aircraft will enable management to finalize its capital management policy. MAS is accumulating cash at an aggressive rate, and we expect FY10 net cash to easily reach RM8bn (RM4.80/share), before aircraft purchases. We have a BUY on MAS: (1) normalised pre-tax margins of 4% is low by regional standards (SIA 15-20%) and increase in yield creates a disproportionately strong EPS growth (2) revenue has been growing at a faster rate than cost, thanks to fare hikes and flat non-fuel cost (3) -27% share price YTD has fully discounted the growing competition from low cost carriers and global macro threats (jet fuel prices, economic slowdown).
Fleet renewal leads to capital management
We think MAS is a prime candidate for capital management (net cash of RM2.60/ share, 20% FCF yield), which could happen after management finalizes its fleet renewal program within the next few months.
Price target RM7.00
Share price at 31 Mar RM3.54
Investment summary
MAS announced the purchase of up to 55 Boeing narrow-body planes valued at USD4.2bn at list price and agreed with Airbus on compensation and new delivery timetable for the 6 A380. We believe yesterday’s order for narrow-body aircraft and impending decision on wide-body aircraft will enable management to finalize its capital management policy. MAS is accumulating cash at an aggressive rate, and we expect FY10 net cash to easily reach RM8bn (RM4.80/share), before aircraft purchases. We have a BUY on MAS: (1) normalised pre-tax margins of 4% is low by regional standards (SIA 15-20%) and increase in yield creates a disproportionately strong EPS growth (2) revenue has been growing at a faster rate than cost, thanks to fare hikes and flat non-fuel cost (3) -27% share price YTD has fully discounted the growing competition from low cost carriers and global macro threats (jet fuel prices, economic slowdown).
Fleet renewal leads to capital management
We think MAS is a prime candidate for capital management (net cash of RM2.60/ share, 20% FCF yield), which could happen after management finalizes its fleet renewal program within the next few months.
HLG: 25 March 2008 MAS - Buy for the cashflow
Malaysian Airlines BUY
Price target RM7.00
Share price at 24 Mar RM3.48
Investment summary
We initiate coverage on MAS with a BUY: share price has fallen –29% YTD, implying an ex-cash FY07 PE of 3x, vs. 8-9x for regional peers SIA/Cathay. Despite cheap valuations, we think MAS’ near-term earnings are biased upwards: (1) normalized pretax margin of 4% is low by regional standards (SIA is 15-20%), and modest increases in passenger yield create disproportionately strong EPS growth; (2) revenue has been growing at a faster rate than cost, thanks to fare hikes and flat non-fuel cost; (3) MAS benefits from USD depreciation, at a rate of +RM60m (8% of consensus FY08 forecast) for every 1% decline in the USD exchange rate. We think the current share price fully discounts longer-term challenges (competition from Air Asia X, difficult second-round reform gains) and global macro threats (fuel prices, economic slowdown, one-off event risks).
Double-bagger
Share price has collapsed to a level which ignores MAS’ current cash hoard (RM2.63/ share) and annual FCF (RM0.60/Sshare). While longer-term challenges remain, we think MAS is an easy gainer over a 1-yr holding period.
Price target RM7.00
Share price at 24 Mar RM3.48
Investment summary
We initiate coverage on MAS with a BUY: share price has fallen –29% YTD, implying an ex-cash FY07 PE of 3x, vs. 8-9x for regional peers SIA/Cathay. Despite cheap valuations, we think MAS’ near-term earnings are biased upwards: (1) normalized pretax margin of 4% is low by regional standards (SIA is 15-20%), and modest increases in passenger yield create disproportionately strong EPS growth; (2) revenue has been growing at a faster rate than cost, thanks to fare hikes and flat non-fuel cost; (3) MAS benefits from USD depreciation, at a rate of +RM60m (8% of consensus FY08 forecast) for every 1% decline in the USD exchange rate. We think the current share price fully discounts longer-term challenges (competition from Air Asia X, difficult second-round reform gains) and global macro threats (fuel prices, economic slowdown, one-off event risks).
Double-bagger
Share price has collapsed to a level which ignores MAS’ current cash hoard (RM2.63/ share) and annual FCF (RM0.60/Sshare). While longer-term challenges remain, we think MAS is an easy gainer over a 1-yr holding period.
Monday, 17 March 2008
KENANGA MAS - HOLD - 17 Mar 2008
Malaysian Airline System - High oil price threatens (Company Update)
Price: RM3.50
Target Price: RM3.90
Recommendation: HOLD
· Downgrade FY08 and FY09 net profit forecasts by 19% and 14% respectively as we revise our 2008 and 2009 oil price assumption upwards from US$85/barrel to US$95/barrel and US$90/barrel respectively, following the recent oil price spiked above US$110/barrel and similiar revision by the US Energy Information Administration (EIA).
· Oil price shot past the roof. WTI soared above US$100/barrel on 19 Feb and ended the week at US$110/barrel. Jet fuel surged even further to an unprecedented level of US$129/barrel at the time of writing.
· MAS has increased its FY08 fuel hedge to 43% requirement at US$89/barrel from 38% at US$84/barrel to mitigate the high oil price impact. Fuel expense makes up c.30% of MAS operating cost and remains the single largest operating cost component for airlines.
· Impact of high oil price to MAS bottomline however will be mitigated by: a) various cost reduction initiatives; b) increase in fuel surcharge; and c) strengthening RM. Our earlier analysis indicated that a 1% increase in fuel price assumption will cut FY08 net profit by 4%, all else equal. An 11% increase in oil price assumption to US$95/barrel should therefore slash our net profit by almost half! We are however cutting our FY08 net profit by only 19% as we opine that MAS will accelerates its' RM1b cost reduction initiatives and hike fuel surcharge to counter the rising oil pressure. The faster than expected appreciation of RM should help to provide some relief too.
· Challenging outlook for the sector as potential global economic deceleration and high oil price could act as a double whammy to airlines. MAS near term earnings however should be relatively resilient given its recent turnaround and ongoing restructuring efforts to reap various cost reductions benefits. Maintain HOLD but target price revised to RM3.90 based on FY08 PER of 11.5x following our earnings downgrade.
KENANGA INVESTMENT BANK BERHAD (15678-H)
Research Department
Price: RM3.50
Target Price: RM3.90
Recommendation: HOLD
· Downgrade FY08 and FY09 net profit forecasts by 19% and 14% respectively as we revise our 2008 and 2009 oil price assumption upwards from US$85/barrel to US$95/barrel and US$90/barrel respectively, following the recent oil price spiked above US$110/barrel and similiar revision by the US Energy Information Administration (EIA).
· Oil price shot past the roof. WTI soared above US$100/barrel on 19 Feb and ended the week at US$110/barrel. Jet fuel surged even further to an unprecedented level of US$129/barrel at the time of writing.
· MAS has increased its FY08 fuel hedge to 43% requirement at US$89/barrel from 38% at US$84/barrel to mitigate the high oil price impact. Fuel expense makes up c.30% of MAS operating cost and remains the single largest operating cost component for airlines.
· Impact of high oil price to MAS bottomline however will be mitigated by: a) various cost reduction initiatives; b) increase in fuel surcharge; and c) strengthening RM. Our earlier analysis indicated that a 1% increase in fuel price assumption will cut FY08 net profit by 4%, all else equal. An 11% increase in oil price assumption to US$95/barrel should therefore slash our net profit by almost half! We are however cutting our FY08 net profit by only 19% as we opine that MAS will accelerates its' RM1b cost reduction initiatives and hike fuel surcharge to counter the rising oil pressure. The faster than expected appreciation of RM should help to provide some relief too.
· Challenging outlook for the sector as potential global economic deceleration and high oil price could act as a double whammy to airlines. MAS near term earnings however should be relatively resilient given its recent turnaround and ongoing restructuring efforts to reap various cost reductions benefits. Maintain HOLD but target price revised to RM3.90 based on FY08 PER of 11.5x following our earnings downgrade.
KENANGA INVESTMENT BANK BERHAD (15678-H)
Research Department
Friday, 7 March 2008
CIMB:MAS (OUTPERFORM, TP: RM9.85) - Corporate day highlights - Making progress
Malaysian Airlines' ED/CFO Tengku Dato' Azmil presented at our Corporate Day conference yesterday. Here are the key highlights.
1. Head honchos may want to remain after contract expiry. Both Tengku and Managing Director Dato' Sri Idris Jala's three-year service contracts expire at the end of this year, but are probably interested to renew their contracts, subject to negotiations.
2. Cost management.
MAS adopts a competitive fuel hedging policy, benchmarked against its competitors' average hedged price and proportion locked in. For FY08, it has secured 38% of its fuel requirements at WTI US$84/barrel.
Efforts to reduce fuel consumption will continue by mining data on a micro level, and benefits should accrue in 2008.
Other costdown initiatives include the renegotiation of the pricing in contracts that have expired.
3. Squeezing productivity growth by reducing turnaround times.
Despite the lack of new aircraft, MAS is squeezing productivity from its existing fleet as a means to generate capacity growth. This is achieved from reducing turnaround times.
A decision on narrow-body fleet renewal is imminent, after nearing completion its detailed cost analysis.
4. Talks with American, Indian, and Turkish carriers continuing to expand its hub-and-spoke strategy.
5. Maintain OUTPERFORM and target price of RM9.85, based on an unchanged P/E target of 10x.
We emerge from the Corporate Day presentation confident about MAS's restructuring story, although rising oil prices may dampen earnings growth in the near term.
MAS said that the effects of the US economic slowdown are imperceptible at this point.
The key catalyst is earnings growth as restructuring takes root. Fuel costs remain high in 2008 but MAS will benefit from a reduction in sales commissions and continued yield enhancement for the passenger business.
1. Head honchos may want to remain after contract expiry. Both Tengku and Managing Director Dato' Sri Idris Jala's three-year service contracts expire at the end of this year, but are probably interested to renew their contracts, subject to negotiations.
2. Cost management.
MAS adopts a competitive fuel hedging policy, benchmarked against its competitors' average hedged price and proportion locked in. For FY08, it has secured 38% of its fuel requirements at WTI US$84/barrel.
Efforts to reduce fuel consumption will continue by mining data on a micro level, and benefits should accrue in 2008.
Other costdown initiatives include the renegotiation of the pricing in contracts that have expired.
3. Squeezing productivity growth by reducing turnaround times.
Despite the lack of new aircraft, MAS is squeezing productivity from its existing fleet as a means to generate capacity growth. This is achieved from reducing turnaround times.
A decision on narrow-body fleet renewal is imminent, after nearing completion its detailed cost analysis.
4. Talks with American, Indian, and Turkish carriers continuing to expand its hub-and-spoke strategy.
5. Maintain OUTPERFORM and target price of RM9.85, based on an unchanged P/E target of 10x.
We emerge from the Corporate Day presentation confident about MAS's restructuring story, although rising oil prices may dampen earnings growth in the near term.
MAS said that the effects of the US economic slowdown are imperceptible at this point.
The key catalyst is earnings growth as restructuring takes root. Fuel costs remain high in 2008 but MAS will benefit from a reduction in sales commissions and continued yield enhancement for the passenger business.
Subscribe to:
Posts (Atom)
