Period  2Q14/1H14

Actual vs. Expectations  Malaysian Airline System (MAS) registered core net loss of RM822.8m, well within our loss expectation of RM1,950.9m but over consensus loss estimate of RM1,232.2m. We believe that consensus overall yield could be overestimated as they were expecting a minor recovery in fares.

Dividends  No dividends declared due to losses, as expected.

Key Results Highlights YoY, MAS saw its 1H14 core losses widened by 52% from losses of RM542.6m to RM822.8m as revenue declined by 2% to RM6,868.4m due to the compression in Revenue per Available Seat

Kilometre (RASK) from 25.2 sen to 21.9 sen (-13%) driven by lower expected fares arising from the unexpected MH370 incident. Management has to further lower down fares to regain consumer attention in the market.

 QoQ, its 2Q14 core losses narrowed to RM366.9m from RM455.9m previously due to some improvements in costs whereby its Cost per Available Seat Kilometre (CASK) was lower marginally by 1% to 24.6 sen due to lower fuel cost per seat kilometre while its other costs remain fairly the same.

Outlook  MAS’ outlook remains bleak and uncertain as there are no formal turnaround plans yet at this juncture and its core losses could hit our core loss estimate of RM1,950.0m by year-end, in the absence of any action to tackle its costs and marketing issues.

 Pending formal business turnaround plans from Khazanah.

Change to Forecasts No change to our earnings estimates.

Rating  ACCEPT OFFER

Valuation  As per our report date 11-Aug-14, we urge minority shareholders to ACCEPT OFFER as its practically a risk-free and may be the best available option left for minority shareholders.

Risks to Our Call Risk free.

Source: Kenanga