Malaysian Airline System (MAS)’s passenger load factor hit a new high of 84.3% in June. Its 2QFY13 overall load factor improved by 3.9% q-o-q and 4.9% y-o-y. This seems to indicate that MAS may be able to mitigate its  losses  in  2QFY13  amid  yield  pressure.  Maintain  Trading  BUY  on MAS, with our MYR0.43 FV unchanged.  

- Operating  stats  continue  to  improve.  MAS’ 2QFY13 operating  stats continued  to  show  positive  growth.  Total  revenue  passenger  kilometers (RPK)  climbed  13.3%  q-o-q  and  29.3%  y-o-y,  while  total  available  seat kilometers  (ASK)  grew  7.8%  q-o-q  and  18.7%  y-o-y.  It  is  worth  noting that  the  growth  of  domestic  passenger  RPK  in  2QFY13  (+22.1%  q-o-q, +23.3%  y-o-y)  may  indicate  that  the company’s fleet  modernization  is drawing  more  passengers.  Meanwhile,  its  participation  in  the  oneworld alliance also helped lift MAS’ international passenger RPK by 12.3% q-o-q and 30.1% y-o-y. In June, the national carrier’s passenger load factor hit  a  new  high  of  84.3%  (up  6.9%  y-o-y),  breaking  its  earlier  record  of 81.4% in Dec 2012.  

- Yields remain under pressure. We believe that the yields of full-service carriers  (FSC)  including  MAS  are  still  under  pressure.  Nonetheless, given  the  strong  improvement  in  its  operating  stats,  we  think  MAS  may be  able  to  mitigate  its  losses  in  2QFY13,  for  which  the  results  will  be released  next  Wednesday  (31  July).  That  said,  we  are  hopeful  that  the improved  frequency/passenger  volume  would  help  mitigate  the company’s costs associated with slashing airfares.

- Maintain  Trading  BUY,  MYR0.43  FV.  We  keep  our  Trading  BUY recommendation  on  MAS,  with  our  MYR0.43  FV  based  on  9x  adjusted FY14F  EV/EBITDAR.  As  highlighted  previously,  we  advise  caution  on MAS’ potential losses in 2QFY13 – which is a seasonally weak quarter in the  year  –  although  we  believe  that  the  losses  should  narrow  in  the current quarter.

Source: RHB