RHB Research said the best-case scenario for Malaysia Airlines (MAS) is to maintain its listed status and undergo a restructuring exercise to boost yields and improve productivity, while trimming its workforce.
It said in a note yesterday that news reports hinting of an imminent restructuring and an emphasis on productivity bodes well for the airline in the long term, and it upgraded the stock to “neutral” with an unchanged fair value of RM0.19.
RHB Research has relooked at the carrier’s business model to understand its main problem and came up with three scenarios.
q Restructuring under current conditions, which includes spinning off profitable divisions to raise cash, downsizing its workforce and cutting capacity;
q Privatisation; and,
q Declaring bankruptcy.
“Our ideal assessment is a combination of the downsizing of MAS’ workforce and cutting capacity. We estimate downsizing its workforce by 19 per cent and reducing capacity by 10 per cent,” it said.
Major shareholder Khazanah Nasional Bhd has given a clearer indication that it will take a relook at MAS’ business model and come up with a restructuring plan in six to 12 months.
“We think that a privatisation or bankruptcy is unlikely at this juncture.
Moreover, the carrier’s shares
are currently trading within
the neutral region of our
RM0.19 fair value, which is
pegged to a 1.0x Financial Year
14F precast P/BV (unchanged). As such, we are upgrading the stock to ‘neutral’ from ‘sell’,”
RHB Research believed MAS could potentially trade as high as 1.2x FY14 P/BV (price-to-book value), which is the median P/BV of all airlines listed globally. This could also possibly see its share price inch higher by 14 per cent to RM0.23 in the near term.