MAS - Business strategy remains intact

By Sharen Kaur

LOW PRESSURE: MH370 incident will not dent MAS bid to restore profitability, says official

THE Malaysia Airlines flight MH370 incident will not put a dent in the carrier’s business strategy, says a company official.

 The official, who spoke on condition of anonymity, said the plan will remain intact until and unless it becomes necessary to adopt a new one.

“For now, the business strategy, which is churning out positive gains, will remain as it is,” the official said.

The airline’s business strategy is aimed at restoring profitability by significantly cutting capacity and focusing on its premium sectors.

Flight MH370, which carried 239 passengers, including 12 crew members, disappeared while flying over South China Sea on a flight from Kuala Lumpur to Beijing early on Saturday.

The incident weighed down on MAS’ share price on Bursa Malaysia in the morning session yesterday.

The counter, which closed at 25 sen last Friday, fell to 20.5 sen in morning trade but later rebounded to close one sen lower at 24 sen.

It was the most active stock on the local bourse with 385 million shares traded.

Meanwhile, analysts said MAS’ air flight safety procedures should not be blamed for the disappearance of flight MH370.

“The issue is more on airport security or unforeseen problems. I don’t see any reason why MAS might want to change its business strategy as a result of this incident,” says Mercury Securities
head of research Edmund Tham.

On the sharp movement in the airline’s share price yesterday, Tham expects it to be temporary and “the stock will rebound”.

“The lower share price is because of a drop in investors’ sentiment following the incident.

I believe investors may turn to other aviation stocks or other sectors for a while.

“The main issue is MAS’ profitability and not so much the missing plane. It is up to Khazanah (Nasional Bhd) on whether to prop up the price,” Tham told Business Times.

MAS stock dropped 19 per cent when it announced a fourth-quarter net loss of RM342 million for fiscal year 2013 on February 18.

HwangDBS Vickers Research has maintained a “fully valued” recommendation on MAS’ shares, with a target price of 27 sen a share.

Hong Leong Investment Bank (HLIB) Research said it expects minimal expenses to be borne by MAS over the MH370 incident and any compensation would likely be covered by insurance, as
with previous cases.

On the airline’s share price performance, HLIB expects selldown pressure in the immediate term.

The research firm maintained a “sell” call on the counter with a revised target price of 20 sen from 25 sen previously.