Wednesday, August 14, 2013

Is MAS undervalued?

I hope so, but it is not. One can't use the price when it was RM6 to today's price. At today's price, it has just raised a 4 for 1 rights at RM0.23. That means the costs for every 4 of the 5 shares were at RM0.23. Putting that argument aside, I would like to ask a few questions.
  1. What is the future outlook for MAS?
  2. Are the other airlines almost similar to MAS - KLM, SIA, Thai Airways, British Airways in almost similar situation?
  3. Is the business competitive?
If you do not see the situation surrounding MAS as positive, what makes one think MAS is undervalued? EPF has just reduced its stake in MAS to below 5% few months ago. If MAS is undervalued, then EPF has done something very wrong. To be fair to EPF, I support its move. MAS is a company that is bleeding money while the situation surrounding issues such as being a national carrier, manpower, and tougher competitors are difficult situation in play.

The current situation faced by MAS is 50% itself's wrong-doing while the 50% is due to situation in the market. There are too many competitors around and it seems that the low-costs airlines are winning - although barely.

At today's valuation (RM0.335), MAS is trading at more than RM5.5 billion market capitalisation. Yes! One would say that it raised more than RM3 billion to survive it. As a Malaysian, I would welcome any suitor whom would try to take the burden off the Malaysian government at say RM6 billion valuation. That would put it at around RM0.36. But to that suitor, sorry no more rescue if you could not make it.

Dare to try? 

You know who are the winners nowadays - Boeing, Airbus and the engine suppliers like GE, Rolls Royce.

10 comments:

Fung C.F. said...

Spot on Felicity.

A friend of mine said MAS is cheap because we are quoting the share price using "cent". He bought at towering price, refused to cut loss, subscribed to the rights to average down the cost, and hoping for miracle to breakeven at 60 cents. As his sincere friend, I pray hard for him.

Raymond Fang said...
This comment has been removed by the author.
yhtan said...

I flew to London last month by its new airbus A380, surprisingly the loading factor is over 90% based on my observation.

Then I read CIMB coverage on aviation sector, MAS loading factor is at 85%, I believe MAS failed badly in cost management, one of its factor could be its aging plane

3217 said...

MAS need Kazuo Inamori, apparently we don't have one.

3217 said...

MAS need Kazuo Inamori, apparently we don't have one.

AdCool said...

The two most challenging costs to MAS are the fuel cost and manpower cost. It can't really control the fuel cost except for better fuel pegging and renewing its fleet for cost efficiency. Alternatively, it cuts some routes and focus on the more profitable routes.

As for manpower cost, this is a tough one as their workforce is unionized. It's not easy to deal with union and as far as it concerns, union wouldn't agree to anything when it comes to manpower reduction or pay reduction. Lately, the union even calls for change of management as I believe the current management is tough on them in term of cost management efficiency.

If you look deeper into MAS financial report, the loss making for Q1 2013 were mainly due to depreciation and foreign exchange losses. If you look into their operation revenue and cost, there is actually positive cash. This has been 3rd quarters that the current management is generating positive cash flow from its operation. If you ask me if their turnaround plan is working, I would say yes but it is bound by their ever challenging issues which are the fuel and union.

felicity said...

I guess it would be hard to say how much cashflow it will be generating. MAS will still need to replenish its line of aircrafts I presume and that by itself will be tough to the cashflow and balance sheet.

While the fuel costs is an important cost, the challenge are faced by all the players, not just MAS.

The challenge for MAS to me is the cost structure for low costs airlines, increasing competition and there are just other airlines which are better funded such as SIA, Cathay Pacific and Emirates.

Those and the competition from Airasia, Airasia X, Malindo and just every other players. Costs is a factor to all the players but these guys just can't compete against the low cost players.

Gark said...

Overstaffed with overpaid unionized workers and full of cronies supplying overpriced items to MAS. Add in a dash of government pressure to keep unprofitable routes. How to run a company like that?

They should follow major airlines saddle with the same problems as above, declare bankruptcy and start afresh.

AdCool said...

Bankruptcy may not be the right move. The more practical approach is to de-list it, take it into private and revamp the whole structure without any political influence.

To be fair to MAS, even JAL went burst 3 years ago. Both SIA and Cathay are facing tough economy and yield pressure as well even they are well run. Guess the aviation sector isn't something easy to run after all.

But the value here is the MAS brand. Just ask yourself, if given a choice of between AA and MAS with only a slight difference of RM200, which airline would you take? I know myself still taking MAS to Sabah even it s more expensive and my friends too due to its convenience and hassle free. Unfortunately this is only true for domestic but not for international as the difference can come into thousand.

DayTrader said...

Airline business is tough indeed but with when things have hit rock bottom, the only way left is up, which leads to the answer that I do think MAS is undervalued.

I bought MAS and took up the rights issue, and bought even more after that on dips. At current trading price I am in the money though the returns are not good considering the risk factor involved with so many unknowns.

But it does have the potential to turn out as a turnaround play and I don't see a further bottom for MAS in the next few years with its cash pile.