Malaysia  Airlines  (MAS)  released  more  promising  operating  statistics, with  its  September  numbers  showing  what  we  see  as  yet  more  proof that  the airline’s strategy to improve profitability  is bearing fruit while Visit  Malaysia  2014  may  sit  well  with  its  strategy,  although  intense competition  persists. We keep our Neutral stance with  our MYR0.34  FV remaining unchanged at this juncture.

• Operating  stats  still  buoyant.  MAS  continued  to  record  promising operating stats, with its September overall load factor coming in at 81.1% (+1.9% m-o-m, +7.7% y-o-y). In  9MFY13, its overall passenger capacity expanded  16.8% y-o-y  while  revenue passenger kilometres (RPK) grew at  a  faster  27.9%  y-o-y.  The  load  factor  for  the  airline’s  international flights  stood  at  81.5%  (+7.4%  y-o-y)  in  9MFY13,  mainly  attributed  to what  we  believe  is  its  participation  in  the  oneworld  alliance.  These improvements are  in line with management’s  strategy to  turn  around by increasing  the  carrier’s  capacity  and  applying  a  ‘load  active,  yield passive’ strategy to improve profitability.
   
• Visit  Malaysia  2014  boost.  The  Government  has  earmarked  2014  as Visit Malaysia Year  in  its efforts to promote Malaysia as a major tourist attraction  and  boost  passenger  traffic.  Although  all  airlines,  including MAS,  may continue to face challenges in the  pricing of airfares, the  high passenger  traffic  will  complement  MAS’  strategy  to  fill  up  its  aircraft. While we do not  expect  to see  exponential growth in earnings,  the  high passenger  traffic  will still  translate  into  a  high load  factor for  MAS  and hence, enhance the carrier’s profitability.

• Risks. Fluctuations in the foreign currency rates as well as jet fuel price, together with a competitive operating environment, are key risks to MAS’ turnaround plans.

• Maintain Neutral, FV unchanged. For now, we maintain our NEUTRAL stance on MAS, with our FV of MYR0.34, derived from an unchanged 9x adjusted  FY14F  EV/EBITDAR.  We  are  of  the  view  that  the management’s  strategy  is  on  the  right  track  towards  boosting  MAS’ profitability and helping the carrier potentially break even by FY14 as per management guidance.

Source: RHB