News

MAS has finalized the issuance of Renounceable Rights Issue of up to 13,368.6m new ordinary shares on the basis of four (4) Rights Shares for every one (1) existing MAS ordinary share, after successfully reduced the par value of each shares to RM0.10 from RM1.00 (part of the capital restructuring plan).

The Rights Issue is fixed at RM0.23/share, which represents a discount of 72.1% to the last traded price of RM0.825.

Details of the Rights Issue:

• Ex-date: 02/05/2013
• Entitlement date: 06/05/2013
• Listing date: 05/06/2013 Financial Impact

Earnings dilution impact up to 80% (assuming all rights issue being subscribed). Major shareholder Khazanah is committed to subscribe for its 69.4% share of entitlements.

Comments

The announced Rights Issue is different from the initial guided scenarios of 1) 7 for 4 at RM0.50/share; 2) 3 for 2 at RM0.60/share; and 3) 5 for 4 at RM0.70/share.

Nevertheless, MAS will raise a sum of RM2.1bn (assuming only Khazanah exercising the rights) or RM3.1bn (assuming all rights being exercised).

For every owned MAS shares, existing shareholders will need to contribute RM0.92 (RM0.23 x 4), which is slightly higher than previous guidance of RM0.90 (RM0.60 x 3/2).

Post the exercise, the adjusted net gearing (Sukuk deemed as borrowing) is expected to improve significantly to 1.6x from current level of 14.2x in FY12, as shareholders equity portion improved (denominator).

The RM3.1bn proceeds will be used to pare down existing debts and fund future capex. Furthermore, the improved capital structure will allow MAS to gain access to debt market and with a better bargaining power.

Risks

World crisis (ie. war, tourism and epidemic outbreak), prolong surge in jet fuel price and the development of high speed train between Singapore and Pulau Pinang.

Forecasts

Unchanged.

Rating

Sell

• Positives –
  • Business turnaround with new management team.
  • Reduced unit operating cost with delivery of new aircrafts.
  • Leveraging on Oneworld Alliance network to improve services and connectivity.
• Negatives –
  • Restructuring plan (BTP) subject to implementation risk.
  • Competitive pressure on airfare from LCCs and FSCs.
  • High jet fuel prices.

Valuation

• Maintain sell with unchanged Target Price of RM0.62. Post Rights Issue exercise, our adjusted Target Price is RM0.31.

Source: Hong Leong Investment Bank Research - 12 Apr 2013