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Tuesday, June 24, 2014

MAS target price slashed by 43% to a mere 12.5 sen


PETALING JAYA: Maybank IB Research has slashed 43% off its target price forMalaysia Airlines (MAS) to a mere 12.5 sen on concerns the ailing airline cannot wait six to 12 months for a new turnaround plan.
This is the lowest value tagged to MAS in recent times by a brokerage. Maybank IB Research’s target price is 44% lower than MAS’ last close of 22.5 sen.
Despite the grim prognosis, the stock gained half a sen yesterday on heavy volume of 45.37 million shares, making it the day’s third most-active trade across Bursa Malaysia.
Bloomberg data showed that the 15 analysts covering MAS had target prices ranging from as low as 10 sen (Affin Research) to 27 sen (AmResearch).
This translates to a consensus target price of 17 sen for the flag carrier, implying a 24% downside to its current price.
Only two analysts have put a “hold” rating on MAS, with the remaining 13 calling a “sell”. There were no “buy” calls as at press time. Shares of MAS are down 27% for the year.
Maybank IB Research said in its latest note on MAS that time was running out for the national carrier on the back of its weakening financials. “We had initially hoped for a restructuring within the next one to two months and the statement (from Khazanah Nasional Bhd) disappointed. Our analysis alludes that MAS’ financials are very weak in their current form.
“With a cash burn rate of RM5mil per day, MAS could exhaust its entire free cash resources and gearing could soar to five times by the end of 2015.
“Hence, a revival plan by end-2014/mid-2015 may be a tad too late,” explained the research outfit.
Khazanah had said recently it would unveil a plan to restructure MAS yet again within the next six to 12 months.
“The market took this news favourably and MAS’ share price has surged by 29% since the announcement,” Maybank IB Research said.
According to the brokerage, MAS’ upcoming second-quarter results are expected to be its worst ever due to seasonal weakness, flight cancellations and low industry yields.
“We advise investors to sell MAS ahead of weaker results ahead. The situation is dire, as the industry continues to be plagued by weak yields and MAS is burning its limited cash resources fast.
“Furthermore, there are unconfirmed murmurs that the management will accelerate the disposal of old Boeing 777-200ER from the fleet.
“We are positive on this, but it will require massive impairment charges and will further diminish the group’s balance sheet.
“We don’t foresee any miracle reversal in fortunes for the industry in the horizon. The only way for MAS to sustain its operations in its current form is to raise fresh capital, in our view,” added Maybank IB Research.
An analyst with a local bank-backed research house told StarBiz that MAS could keep going for another 12-18 months, as the airline had yet to drawdown on an outstanding RM1.5bil sukuk.
“A capital injection would be a shot in the arm for MAS, but what we need more urgently is a comprehensive overhaul.
“More cash won’t help MAS if it continues running the business the same way, which is unsustainable,” the analyst said.
Abu Dhabi-based Etihad Airways last week denied media reports that it was in talks with MAS for an equity investment as part of a rescue plan.
According to estimates compiled by Bloomberg, MAS is expected to post a net loss of RM1.11bil this year, a slight improvement over last year’s net loss of RM1.17bil, on sales of RM15.52bil.

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