We are discontinuing our coverage on Malaysia Airlines, following the approval  of  privatisation  by  its  minority  shareholders  yesterday.  Our earlier  recommendation  was  NEUTRAL,  and  we  had  advised  minority shareholders  to  accept  the  MYR0.27  offer  by  Khazanah.  Khazanah’s MYR6.0bn  restructuring  plans  include  a  capital  injection,  streamliningof workforce, a review of routes and renegotiation of supply contracts.

Decision  made.  At  yesterday’s  extraordinary  general  meeting  (EGM), Malaysia  Airlines’  (MAS)  minority  shareholders  have  voted  to  approve the proposed privatisation of the airline by Khazanah, at the share price of MYR0.27. Around 93.98% voted in favour of the proposal while 6.02% voted  against  it.  We  had  advised  minority  shareholders  to  accept  the offer  as  we  do  not  foresee  any  potential  significant  turnaround  for  the airline  in  the  foreseeable  future  after  the  MH370  and  MH17  incidents, coupled with the already challenging operating environment of the airline industry.  Should  the  privatisation  fail   to  materialise,  minority shareholders could possibly see their equity value diminish further.

Khaznah’s revamp plans. The highlights include: i) a MYR4.6bn capital injection (after priatisation), ii) a 30% cut in workforce, and iii)  a  review of  routes  and  renegotiation  of  supply  contracts.  Privatisation  is  key  to Khazanah’s  willingness  to  pump  in more capital  to  pave  the  way  for a successful restructuring.  A new company will be formed (New MAS) in anticipation of a slimmer workforce and higher efficiency (see our 2 Sep 2014 report Malaysian Airline System - A New Beginning).

Discontinuing  coverage.  Since  the  privatisation  proposal  has  been approved, we are discontinuing our coverage on Malaysia Airlines. Our last  recommendation  was  NEUTRAL,  and  we  had  advised  minority shareholders to accept the offer. Our previous TP was  MYR0.27, which is the offer price by Khazanah.

Source: RHB