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MAS Airlines Investment Outlook 2012

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MAS Airlines Investment Outlook 2012

  1. 1. Malaysia AirlinesInvestment Outlook
  2. 2. Agenda• COMPANY BACKGROUND• CURRENT ISSUES• STATISTICS/CHARTS• CRITICAL ANALYSIS• FUTURE OUTLOOK• SUMMARY
  3. 3. COMPANYBACKGROUND• Founded as Malaysia Airways Ltd. (MAL) in 1947.• Malaysian Airline Systems (MAS) was established in October 1972, servicing 34 domestics routes and six international destinations• By the end of 1987, MAS has spur growth as an international carrier, offering 34 domestic routes and 27 international destinations.
  4. 4. CURRENT ISSUES• Current market position• RM 2.5 billion loss for 2011• Exceed the loss predictions of 15 Bloomberg analyst the 1.21 billion.• Expected further loss for 2012 (strive for breakeven)
  5. 5. Malaysia Airlines5-years Share Price 4.88 3.02 2.77 2.09 1.31
  6. 6. Singapore Airlines5-year Share Price
  7. 7. Air Asia5-year Share Price
  8. 8. World Airlines Net Profit
  9. 9. Malaysia Airlines5-years FinancialPerformance
  10. 10. Malaysia AirlinesRevenue Contribution
  11. 11. Issues Contributing to MAS’s current operating losses
  12. 12. European Economic Crisis
  13. 13. Rising Fuel Prices• Fuel costs represents the largest portion of operating costs.
  14. 14. Fuel Price Trends
  15. 15. Financial Analysis
  16. 16. Analysis• FV Calculations PV Price PV lot Time Period Interest (1/1/2007) (1000) (n) FV Formula FV 0% 4.68 4680 5 4680 FV = 3% 4.68 4680 5 5425.4 PV*(1+r)^n 7% 4.68 4680 5 6563.9 MAS 4.68 4680 5 2090MAS discount rate = -15%
  17. 17. Analysis Analysis• Market Cap MarketCapitalization 2008 2009 2010 2011 2012 Current 4.88 3.02 2.77 2.09 1.31 1.36 3342.15 16,309.69 10,093.29 9,257.76 6,985.09 4,378.22 4,545.32 Total 18000 16000 14000 12000 10000 8000 Total 6000 4000 2000 0 2008 2009 2010 2011 2012 Current
  18. 18. Analysis analysis
  19. 19. Growth Rate, g analysis(in RM000) 2010 2009 2008 2007Revenue 13,587,610 11,605,511 15,570,141 15,232,741Profit/(Loss) before tax 282,036 491,832 290,881 882,333Profit/(Loss) after tax 237,346 522,948 217,795 852,743Retained earning 3,395,266 698,021 4,010,715 3,945,949Retention Ratio 24.99 6.01 25.76 25.90Return on Retained Earning 0.07 0.75 0.05 0.22(ROE)Dividend Payout - - - 2.50Price per share as at 31 Dec 2.77 3.02 4.88 3.89Earning Per Share (EPS) 7.2 25.3 14.6 58.0P/E Ratio 0.38 0.12 0.33 0.07Growth Rate 1.75 4.51 1.40 5.60Growth rate, gg = Retention ratio x Return on retained earnings
  20. 20. Discount Rate, rDiscount rate, RR= D +g 1 P 0D1 = Dividend payout as at 31 Dec 2007P0 = Price per share as at 31 Dec 2007g = Growth rateR= 2.5 + 5.6 = 6.24 3.89
  21. 21. analysisAt 2007, the dividend payout is RM2.50 and the P0(as at 31 December 2007) is RM 3.89, r = 6.24No Growth from 2008 - 2011
  22. 22. Is there a growthopportunity in MAS?
  23. 23. analysisNPVGO = P – EPS / rP (as at 31 December 2007) = RM 3.89Earning Per Share (2007) = RM 58.00r = 6.24NPVGO = P – EPS / R = 3.89 – (58 / 6.24) = - 5.4Based on Year 2007, there is negative growth opportunity.
  24. 24. Turnaround Plan 20111. Joint venture with Air Asia to reduce operational cost2. Revenue/ Yield Improvement (i) Suspending unprofitable routes –Dubai, Cape Town, Johannesburg (ii) Spinning off ancillary businessessuch as cargo and ground cargo (iii) Reduction of headcount
  25. 25. Share Swap Malaysia Airlines Airasia Percent Shares Swapped 20% 10% Share Price at Swap 1.60 3.95 Total Shares Outstanding 3,342.15 mil 2,778.32 mil Market Cap at Swap 5347.44 mil 10974.36 mil Value of Shares Swapped 1069.49 mil 1097.44 milSpeculation:• Positive: MAS needs talent, AA investment growth and leveraging resources.• Negative: Under Government review, Facing Union protests, Khazanah to buyback?
  26. 26. CAPEX• 6 Airbus A380 Super Jumbo purchase• Add MYR 9.5 billion CAPEX expenditure• 2012 – MYR 6 billion• 2013 – MYR 3.5 billion• Speculation:Increasing costs, can MAS sustain this?
  27. 27. SummaryAnalyst Projection• Negative on the stock with more than 60% placing a “sell” call• Reduce the target price on stock to RM1.04• Doubts on the turnaround planSpeculation• Government bailout?• Funding of CAPEX?

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