MAS stock falls 16%, analysts
doubt financing capabilities
Presenna Nambiar
PETALING JAYA (Nov 29, 2012):
"We were taken by surprise on the rights issue proposal. It indicates that MAS may have issues securing financing to meet the group's huge near-term capital requirement amounting to RM9 billion," Alliance Research Sdn Bhd said in a report yesterday.
"We believe investors will be jittery of such a large cash call amid continued operating losses.
"While the cash call will help to address the short-term funding requirement and liquidity needs, it does little to address the losses at the operating level."
Malaysia Airlines' (MAS) stock fell more than
16% on news that it is yet again seeking capital injection from major
shareholder, Khazanah Nasional Bhd and cancelling 90 sen of its par value.
The national airline, which was the most
actively traded counter yesterday, saw more than RM560 million of its market
capitalisation wiped out at the end of trading activities.
The stock closed 17 sen down at 84 sen, with
some 77.2 million shares done.
MAS had on Tuesday announced plans to have a
rights issue to raise up to RM3.1 billion for working capital (RM1.3 billion),
capital expenditure (RM987 million) and repay borrowings (RM777 million).
It also plans to shave off its share premium
account in a bid to cut its accumulated losses, buy back 10 Boeing 737-400s
originally on lease for RM64 million to meet network requirements prior to the
delivery of its new 737-800 fleet and to save on high maintenance costs it
would need to incur to deliver the planes back to its lessor in mint condition.
Analysts are
still cautious on the MAS turnaround story, despite it beating the consensus
target on core losses, overshadowed by another rights issue and a reduction in
par value of its shares from RM1 per share to 10 sen a share.
The airline registered a small operating
profit of RM3.9 million on revenue of RM3.3 billion for the third quarter ended
Sept 30 2012 due to lower jet fuel prices and fuel consumption as a result of a
7% year-on-year reduction in capacity available-seat-kilometre (ASK) and better
utilisation of newer and more fuel-efficient aircraft.
"We were taken by
surprise on the rights issue proposal. It indicates that MAS may have issues
securing financing to meet the group's huge near-term capital requirement
amounting to RM9 billion," Alliance Research Sdn Bhd said in a report
yesterday.
"We believe investors will be jittery of
such a large cash call amid continued operating losses.
"While the cash call
will help to address the short-term funding requirement and liquidity needs, it
does little to address the losses at the operating level."
Alliance opined that based on the indicative
issue price of 60 sen as disclosed in the company's announcement, the proposed
rights issue will be at a steep discount to current price, while the dilution
is enormous given its expectation of a 3-for-2 rights issue in order to raise
RM3.1 billion.
The
cash call is the third by MAS since 2007.
MAS
raised RM1.55 billion and RM2.67 billion from its rights issue in 2007 and 2009
respectively, to finance new aircraft and pare down debts.
HwangDBS Vickers Research Sdn Bhd said there
is execution risk in MAS trying to turn around its business, and the aviation
landscape in Malaysia will become more competitive with the emergence of
Malindo Airways next year.
The research firm has trimmed its FY12 core
net loss forecast to RM567 million from RM961 million previously, after raising
MAS' passenger load factor from 70% to 75%.
HwangDBS is expecting MAS to register stronger
performance in the fourth quarter of 2012 due to the year-end holidays.
Kenanga Research said with the new fleet in
operation, MAS will be able to make a meaningful turnaround.
The airline is to receive 12 new 737-800s and
three new A330-300s in 2013. It has already added 14 737-800s, eight A330-300s
and four A380s to its fleet since 2010.
Kenanga is raising its FY12 estimate higher by
30% from a RM764 million net loss and RM1.2 billion revenue previously, with a
new RM482 million core net profit target for FY13 estimate, as it expects MAS
to be able to recover its yield and get a higher load via the new fleet.
"In the near
term, any positive share price movement is likely to be muted due to the
negative sentiment on its proposed capital reduction and rights issue
announcement," it added.
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