06 May 2012

MAS : Week 18 (30 April-4 May) Stock Picks Commentary

Stock Picks #3
Malaysian Airline System Berhad (MAS)

Week high : RM 1.34 (Up 12 sen – 9.8%)

On 2 May, Khazanah Nasional Bhd and Tune Air, the major shareholders of Malaysian Airline System Bhd (MAS) and AirAsia Bhd respectively announced that they had agreed to terminate their share swap agreement.

Instead, MAS and AirAsia has entered into a memorandum of understanding on possible set up of a Joint Venture to provide aircraft component maintenance support and repair services, improve value for money and to increase competitiveness and benefits to customers through procurement synergies

The Reason?

MAS’s reason for the termination was due to intense pressure from its 15,000 member employees’ union that opposed the share swap deal citing concerns over potential job losses following the tie-up. The union also said that the tie-up would benefit AirAsia more than MAS.

It is also noteworthy to know that MAS stock price has dropped 29 percent as of April 30 since the share swap deal was agreed in August last year indicating negative market reaction towards the share swap deal.

An interview with AirAsia CEO Tony Fernandes on 5 May saw him defending allegations of him benefiting AirAsia during his stint at MAS, includes killing off Firefly, having MAS to sponsor his QPR football team and unfair advantageous competitive position from having seen inner workings of MAS. 

Tan Sri Tony Fernandes and Datuk Kamarudin Meranun have subsequently resigned as directors from MAS board on 2 May.

Therefore, the market reacted positively when the share swap deal was announced terminated on 2 May. MAS will no longer be restricted to focusing on full-service operations after this deal, which it had earlier agreed to cede the low-cost market to AirAsia as part of the share swap.

Even so, analysts are cautious over MAS fundamentals and financial performance. MAS reported a massive RM 2.6 billion net loss for its previous financial year 2011, Hwang DBS Research believes MAS net gearing could surpass its current 4.4 times as MAS seeks funding for scheduled delivery of RM3.5bil aircraft by its 2013 financial year.

MAS stock rose 11.5% (18 sen) since 2 May to week’s highest RM 1.34 on 3 May and closed at RM 1.24 at the end of this week.


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