Friday, 7 June 2013

Throwing good money after bad!

MIDF Reseach downgrades MAS to "Sell", target price 27 sen
Friday June 7, 2013 MYT 2:45:01 PM

KUALA LUMPUR: MIDF Research has downgraded Malaysian Airline System Bhd (MAS) to “Sell” from “Neutral” and reduced its target price to 27 sen from 34 sen due to its weak prospects.

“Due to the worsening market yields and sticky high operating expenses, we opine that it is improbable for MAS to be able to turn around its business by financial year 2013-2014 as we had earlier expected,” it said on Friday.

It also revised its financial year 2013 and 2014 forecast to a net loss of RM762.5mil and RM187.5 4 respectively and expects the turnaround to happen only in 2015.

MIDF said international “headwinds” will continue to weigh down MAS business turnaround plan despite its recent membership into the Oneworld alliance and ongoing fleet renewal plan.

“In the domestic market, MAS also faces intensifying competitions from accelerated capacity expansion by AirAsia and the launch of Malindo Air,” it said.

It noted MAS regional full service carriers are pursuing the strategy of sacrificing yield in return for a higher load factor.

“Thus under immense international competitions and yield pressure, MAS fare yield dropped by 4.7% on-year to 24.2 sen in 1Q13 despite a leap in passenger load factor by 3.6% points to 76.6%,” it said.

MIDF added MAS have already replaced its entire fleet of B747 and a large portion of its B737-400 with the newly acquired A380 and B737-800 models respectively.

“Nonetheless, there is still a fleet of 17 near aging B777-200ER with an average age of 13.6 years. The management is considering either Airbus A350 or Boeing B787 Dreamliners to replace these long-haul aircrafts,” it said.


  1. I don’t know about depreciation costs but forex losses could be managed by buying the foreign currencies concerned ahead of the financial transactions in those currencies. Or hedging. No doubt, even former Minister Mohd Nor Akob was allegedly responsible for billions of foreign exchange losses when he was at Bank Negara, but the operations of a bank – a central bank at that – are surely different from those of an international airline. I know public listed companies involved in huge annual overseas purchases do employ Forex experts to handle the foreign exchange matters of their companies. Doesn’t MAS have them? If not, they should, otherwise such losses will continue to eat up the gains the airline has made in the 1st quarter and so on.

    And to hell with those “turnaround exercises” done by managements to window dress its financial statements. Asset unbundling, asset flipping, forex gains, fuel hedge initiative and all other short cuts conjured by the consultants etc.” I think the problem partly lies in the fact that the Board of Directors often comprise of people who have no clue about company accounts. The few who do may not ask probing questions for fear of not being recommended to continue being Board members. It was like that for a while some time back. Wonder if it’s still so now. MAS must ubah. Those responsible for the appointment of MAS CEO, non-equitable share swap, etc must ubah.

  2. Last year, same period, the airline said as follows:

    Malaysia Airlines Group registered a loss after tax of RM171 million for the first quarter ended 31 March 2012, a significant 29% reduction from the RM242 million loss for the same period last year despite higher jet fuel price averaging USD135 per barrel during the quarter compared to USD120 per barrel in the previous year.

    Total revenue of the Group stood at RM3.11 billion while overall operating expenditure was RM3.42 billion, thus leading Malaysia Airlines to register an operating loss of RM307 million for the first three months of 2012, 10% lower year-on-year.

    This year pulak, it says:

    National carrier Malaysia Airlines registered a significant improvement in its operations by reducing operating loss by 46% to RM165 million for the first three months ended 31 March 2013 compared with RM307 million in the same quarter in 2012.

    Malaysia Airlines group registered a Net Loss after Tax was RM279 million for the first quarter of 2013 compared to a loss of RM172 million previously.


    Operating loss: 2012 Q1/RM307 million, 2013 Q1/RM165 million (29% reduction y-o-y)
    Loss after tax: 2012 Q1/RM171 million, 2013 Q1/RM 279 million (63% increase y-o-y)

    What do investors look for? Nett profit/loss or operating profit/loss?
    How the company is being managed is best appreciated through loss/profit after tax?

    Talents being imported into MAS nowadays are so highly paid and they travel all over to add value in all the markets. That travel cost itself – no ROI measurement. But they plan such travels (not only MAS, which is free but on other airlines as well which is cost) and yet when they return to base, there is no report on how such trips will improve the bottom line.

    And the government is allowing extra funding. Why?

    Even EPF has been frantically selling MAS shares in the open market for many months. If an institutional investor can do this, what confidence level will minority shareholders have on this stock?

    This airline has communication spinners, who will do anything to keep their jobs and travel all over, but they are clueless on how to emulate the hard work of the pioneers wwho are still around and can offer free cousel. Its just that the current folks there want to do it their way which is actually bleeding the company further despite consultants aplenty in the organisation (who also make money out of an ailing outfit)

    You have any sound advice for Malaysia Airlines and its subsidiaries?

    And we are expected to believe that the airline is doing better this year?

  3. MAS is the only airline probably in world that has not gone through serious restructuring. Even Garudha has done so and has emerged as a stronger airline. How long must MAS suffer under a misaligned cost structure?