Maintain BUY. We hosted MAS at a luncheon last Thursday 29 Nov 2012. Management asserts that the business revamp initiatives and product offering upgrades to match the industry‟s best are starting to show positive results. Gone are the days when MAS was handicapped by outdated product offerings. We are bullish on the outlook for MAS, with 3Q12‟s operating profit underpinning its successful turnaround. Maintain BUY with a lower target price of MYR1.02/share (previously MYR1.20/share) after adjusting for the 3-for-2 rights issue with a 20% discount assumption, and netting off its interest cost savings.

Getting the basics right. The key takeaway of the luncheon was that management had reset how everything was done, and restructured the business accordingly to ensure things make fundamental sense. Many initiatives appear basic and pragmatic, and we take comfort that there are no grandiose execution strategies. Simplicity is the best, every time.

Rights issue to address capital needs. The rights issue will enable MAS to embark on a fleet acquisition programme in the next two years that would cost MYR7.9b. This is the favoured funding option, as it is not only cheaper, but will ensure that net gearing is at comfortable level of 1.8x; an all-debt approach would have resulted in gearing spiking to 4.0x. The issue would also provide MAS with a solid capital base.

Outcome of the luncheon. Our conclusion is that attendees left the meeting feeling more positive than before. However, we do not expect them to be rushing to buy just yet due to the rights issue overhang. Furthermore, there is still a deep-rooted skepticism on MAS. Why is it different now? What can this management do that previous ones could not? These are questions that linger in the minds of investors. The stock‟s biggest challenge is to overturn investor fatigue, and there is no better medication than consistent profits to douse the hangover.

Expect sideways trading. We raise our 2012-14 net profit forecasts by 3% / 18% / 7% respectively after imputing lower interest cost. EPS are however lowered by 52% for 2013 and 56% for 2014 its enlarged share base post rights issue. Despite our bullish view, we think the stock will trade sideways until the rights issue is completed in Apr 2013.

Source: Maybank Research - 04 Dec 2012