Malaysia Airlines (MAS) has scrapped its plan for a regionalpremium airline but is going ahead with its short-haul operations. The nationalcarrier said yesterday the decision to drop the premium airline plan was partof a business model review. MAS group deputy chief executive officer MohammedRashdan Mohd Yusof will no longer head the shorthaul operation. MAS said thebusiness plan it unveiled last December was very much intact and no otherchanges have been made.

As anticipated.  We are not surprised with  this piece of  news following the  national carrier's failure to  seal a partnership with Qantas to set up aregional premium airline.  Furthermore,given the likelihood of a downgrade in its Skytrax rating, this would have putMAS in an even more difficult position to sell the premium concept. 

Maintain SELL.  We make no changes to our earnings estimatesas we have not factored in  the potentialsetting  up of the  proposed regional premium airline.  We maintainour SELL call on MAS, with our FV unchanged at RM0.90, based  on an EV/EBITDA of 8x FY13. Our greatestconcern is how much cash burn to expect in the immediate term since the airlinehas just one and a half months to finalize plans to raise funds and strengthenits balance sheet. We see an equal chance of the carrier calling for a rightsissue or issuing a sukuk debt as its credit facilities dry up.

Source: OSK188