MAS (SELL)

Competition and High Jet Fuel

• New entry of Malindo Airways into Malaysia market by May 2012 is likely to heighten yield pricing competition pressure on MAS (which is currently defending against AirAsia).
• In the near term, MAS is likely to suffer from weak air travel, and compete intensely with the other FSCs and LCCs.
• Any turnaround on international air travel and cargo demand, will be depending on the success of China’s stimulus program, in boosting global trade volumes.
• Potential new leadership of Maseu, likely to have a tougher stance, which may pose further challenge to the execution of MAS business turnaround plan.
• Jet fuel price has recovered back to US$135/bbl, eroding MAS’s margins.
• Maintained SELL recommendation with lower target price of RM0.88 (from RM0.92).

Source: Hong Leong Investment Bank Research - 21 Sep 2012