MAS share price soars to two-month high

[Chan CS 0]

by Yantoultra Ngui Yichen

Email us your feedback at fd@bizedge.com KUALA LUMPUR: Malaysian Airline System Bhd’s (MAS) share price surged 78 sen to almost a two-month high of RM5.30 yesterday on foreign funds buying into the stock following an international roadshow and after CIMB Research raised its target price for the national carrier to RM13.

 

Analysts said other factors were MAS’ rising profitability and its renounceable rights issue of 418 million shares of RM1 each at RM2.70 and 417 million redeemable convertible preference shares (RCPS) of 10 sen each that will be listed tomorrow.

 

According to Bloomberg data, 12 out of 13 analysts tracking the stock have a buy on it, on the back of the carrier’s apparent success in implementing its turnaround plan.

 

MAS’ shares were actively traded yesterday with 2.46 million shares done at prices ranging from RM4.62 to RM5.30. At the close, it settled at its intra-day high of 78 sen.

 

Under its business turnaround plan, the national carrier has forecast a net profit of RM50 million for the year ending Dec 31, 2007, with analysts consensus’ estimates above 10 times of that. MAS has already reported a net profit of RM246 million for the first half ended June 30, 2007 (versus a loss of RM498 million in 1HFY06) on revenue of RM7.19 billion (RM6.05 billion in 1HFY06).

 

CIMB research had raised its target price on MAS to RM13 from RM8.40 previously with a forward price earnings ratio multiple of 12 times to the stock.

 

“We have upgraded FY07 FD earnings per share (EPS) by 12.9% as a result of an adjustment to account for the weighted average number of fully diluted shares, and tweaked down the next two years’ forward EPS numbers by 0.4% and 2.4% on a slightly lower-than-expected conversion price for the redeemable convertible preference share issue,” it said.

 

It said the airline’s ability to pass on surcharges was improving as load factors rose above 75% on increased tourist arrivals as a result of a very successful Visit Malaysia Year 2007, and higher sales after restructuring the sales channels, particularly in Europe.

 

“If the airline continues to succeed in boosting demand and raising its load factor, as we expect it will, MAS will be in an increasingly better competitive position to pass on higher fuel cost via revised surcharges,” CIMB Research said.

 

“MAS’ load factor is improving as tourist arrivals increase and earnings are protected by its 60% hedge for 2007. Preliminary numbers suggest material improvement to yields from 2H07,” it said.

 

It said the airline would benefit from the weakening US economy and as interest rates were cut, it expected the US dollar to depreciate and Asian currencies to appreciate.

 

“This will help the earnings of Asian airlines, which are exposed primarily to non-US dollar revenue but are highly exposed to US dollar costs in terms of jet fuel, maintenance and capital expenditure,” it said.

 

CIMB Research added that investors in airline stocks should not be overly concerned despite the substantial increase of oil prices since early 2007.

 

“In a strong demand environment, airlines have an arsenal of defences that will limit the hit to the bottom line, including raising fuel surcharges and traditional hedging instruments,” it said.

 

Quoting its investor relations officer at Subang Jaya, Song Eu Jin, Bloomberg reported that MAS had held presentations for investors in New York, Hong Kong and London in the past two weeks.

 

The report said MAS was trading at 9.7 times its estimated earnings for next year, compared with an average of 34 times for airlines in the Pacific Rim region, according to Bloomberg data.

 

OSK Investment Research senior manager Chris Eng believed there were some foreign funds buying into MAS, which has been a strong turnaround story, spurred by a recent roadshow.

 

MAS’ turnaround was reflected in the improvement of its economic profit by RM218 million in the second quarter of 2007 from a year earlier mainly due to increased passenger revenue resulting from business turnaround efforts.

 

For the second quarter of the year, it posted an economic profit of RM20 million versus an economic loss of RM198 million a year earlier whereas for the first half of 2007, it posted an economic profit of RM117 million compared with an economic loss of RM458 million last year.

 

Other positive factors include the fact that the Kuala Lumpur-Singapore route would not be opened up to low-cost carriers such as AirAsia Bhd and Tiger Airways, until 2009.

 

Eng said selling pressure on MAS had eased after the new rights shares went ex last month. He said with the price at the current level of RM5.30, it would make it attractive for the investors to buy the rights.

 

MAS undertook the renounceable rights issue of share and RCPS on the basis of one rights share and one RCPS for every three existing shares held on Oct 1, which will raise a total of RM1.54 billion cash. The rights will start trading on Oct 4 and cease quotation on Oct 12.

 

In a report last month, OSK Malaysia Equity Research said it was maintaining a buy on MAS at RM4.12. “MAS’ business plans remain intact and we believe the airline will be able to weather the high oil prices for now, given that it had already hedged 60% of its fuel requirement at WTI (West Texas Intermediate) of US$60 per barrel.”

 

 

It's really great to see MAS's going strong, but I really hope it can last for long... Let's keep our finger crossed! Way to go!

 

 

Chan

[Sanjay Thaker 0]

Still have my believes going strong in Jala's ways..