The MAS Group can be segregated to seven business units, five units are profitable and two are loss making.

Our theoretical break-up value of just its profitable units is MYR4,154m, which is 18% above its current MCAP.

Upgrade to HOLD (from SELL) with a revised TP of MYR0.22 (vs. MYR0.275); we think the stock has reached the bottom.

What’s New

Many investors have asked us what the break-up value of MAS is. This implies that the Street believes that MAS is trading at deep value despite the on-going crisis of flight MH370.

What’s Our View

The story of MAS privatisation is not new, and has surfaced time and again for the past decade. Many of the Group’s business units are profitable and performing well. If they were to be listed as standalone companies, it could unlock significant value for the shareholders. Singapore Airlines (SIA SP, BUY) have performed this strategy with great success.

Our analysis suggests the break-up value of all of MAS’ profitable business units is MYR4,154m (base case), which is an 18% premium to MAS’ current MCAP. Should the unprofitable business units (parent airline and MAS Kargo) manage to successfully turnaround in the future, there is more value to be crystalized.

We make no changes to our earnings forecasts pending clarity over the MH370 issue. The stock has plunged 16% since the incident, and is now trading at 0.87x P/BV which is consistent to its trough valuation back in 2002 and 2008. We think the share price has reached the bottom and upgrade the stock to HOLD (from SELL) with a revised TP of MYR0.22 based on 0.9x 2014 P/BV.  

Source: Maybank Research - 16 Apr 2014