Real traction to turnaround story. MAS’ Dec 2012 operating statistics was inspiring; passenger load factor of 81.4% (+7ppt YoY) is the highest ever in its recorded history (since Apr 2002). Cargo load factor was weaker at 70.5% (-3.0ppt YoY) which is in-line with the global market softness. This brings the full year 2012 passenger load factor to 74.7% (-0.3ppt YoY) and cargo load factor to 70.1% (+0.9ppt YoY). This performance is better than expected and reaffirms our positive call.

Maintain BUY, with an unchanged target price of MYR1.02/share. Record breaking performance. MAS’ operating statistics have improved considerably over the past six months, and are performing on par with the world’s best full service carriers such as Singapore Airlines and Cathay Pacific. Passenger load factors are now close to the 80% levels, which should enable MAS to be sustainably profitable. This is a testimony that the management’s strategies are gaining traction and MAS is on the right path to recovery.

4Q12 core net profit of MYR12.8m? We estimate MYR12.8m in 4Q12, a big reversal from a loss of MYR231.3m in 4Q11. Excluding the noncash items relating to forex gain and provisions write back, we expect a reported net profit of MYR62.7m in 4Q12 versus a loss of MYR1,276.9m in 4Q11 and which represents a 67.3% QoQ growth. This would soften reported net loss for FY12 to MYR539.5m.

Rights issue continues to dominate investors mind. We believe MAS has successfully restructured to become more cost efficient providing it with a platform to be sustainably profitable. Despite the positive performance, we think the market will largely ignore and wait for more successive positive data to be sure. Furthermore, the ongoing rights issue is a big noose on MAS’ share price. We expect the stock to trade sideways until the rights issue is completed in Apr 2013. Our MYR1.02/share target price is based on 2013 adjusted EV/EBITDAR of 7.7x – which is 20% above the Asia Pacific airline peers given that its in the midst of a turnaround followed by strong profit growth thereafter.

Source: Maybank Research - 05 Feb 2013