Inside the profit zone. 1Q13 results, to be released on 29 May, is expected to be marginally profitable, a big reversal from MYR366.8m losses in 1Q12. This will be MAS’ third successive profitable quarter, which adds credibility to MAS’ business turnaround story as 1Q is MAS’ seasonally weakest quarter. 2H13 profits will pick up, given the seasonally stronger period and the benefit of new aircraft induction into the fleet. MAS’ rights issue is done in mid-May and this removed the share overhang. Maintain BUY, with an unchanged target price of MYR0.46/share, pegged to 8.2x 2013 adjusted EV/EBITDAR – in line with Asia Pacific peer airlines.

1Q13 operating statistics on the right path. MAS’ 1Q13 passenger load factor surged by 3.6 ppts YoY to 76.6%, while its cargo load factor increased by 2.0 ppts YoY to 68.9%. The overall load factor was up by 3.1 ppts YoY to 74.0%. Based on observation of other regional peers’ 1Q13 results, we estimate MAS achieved a +1.0% YoY in yields.

Core net profit of MYR10.6m? We estimate the Group’s core net profit is MYR10.6m, from a loss of MYR366.8m in the same period last year. This is attributed to a 1.4% YoY decline in fuel price to USD133/bbl (average for the quarters), cost reduction from the induction of new aircraft into the fleet and the higher unit revenue stemming from better load factor and yield increase.

Business substantially reformed. MAS’ right issue is completed and will provide MYR3.1b of cash infusion to the Company. MAS is on track to receive 16 new aircraft and dispose 22 old aircraft in the year, which will help to reduce operational cost and enhance product quality.

BUY on new beginning. With its balance sheet health restored and the fleet hardware on par with the world’s best airlines, MAS has a powerful arsenal to compete effectively in the market. Customer reviews on MAS has improved substantially, shown in its consistently improving operating statistics. Should MAS be able to maintain this momentum, it will soon achieve pricing power and earn better margins.

Source: Maybank Research - 27 May 2013