Monday, June 11, 2012

Is MAS a value play?

MAS share price hit 15 year low. Since it has fallen quite a lot, is MAS a value buy? Following recent disposal of Proton by Knazanah, analysts are speculating MAS can be the next candidate for it to pare down stakes. This was reported by the Star

Analysts looking at various ways to price MAS should a stake sale exercise crop up

The values estimated by analysts are as follow:

OSK RM $ 1.38, 7.5X EV/EBITDA

MIDF RM $ 1.16, 5.9 EV/EBITDAR

Maybank Investment RM $ 0.97, FY 13 10X PER

The perception on MAS's management has been poor. So, there is no need to talk about that. Fail. Some even compare it to our current Barisan Nasional. It will fall through the screening criteria right away based on this criteria. 

The only bet is "reversal" based on crude oil price due to weak global economy. If you look at this table, the ratio of fuel and oil in 2009 and 2010 was between 30 to 32%(relatively weak crude oil price). The ratio gone up to 42% during very strong crude oil price.  

If the crude oil price were to soften and stay around USD 80 bbl, that will translate to about 20% saving. This will translate into 8% profit to the bottom line. Assuming the revenue stay at around RM $ 13 bln, RM $ 1 billion will drop down to the bottom line. 

In 2011, MAS incured losses of RM 2.5 billion and a big sum of RM 1.09 billion was related to write-off, hopefully it was a one time deal. Substracting RM 1.09 billion, MAS will still incurred RM 1.41 billion. Unless MAS is able to cut cost, under doing nothing scenario but help by softer oil price, MAS will still has about RM 400 million losses. To have meaningful profit of RM 500 mln, MAS will need to cut cost by almost RM 1 billion. Can they do it?

Comparing to other regional players by book value multiple, it is still the most expensive. It's almost 4.9 X book value which is unheard off in such a capital intensive business. It is way more expensive compare to one of the best in the world SIA which is only sold for 1 time book value.

Other than betting on some technical rebound, this stock is far from qualified to be a value play. 


mike said...

Brilliant blog post. You have gained a brand-new fan. Pls keep them coming and I look forward to more of your interesting blog posts. I think it is definitely a good bet. You cannot go wrong with this. concerto de pára-brisas

juzassimple said...

new to this blog..good analysis!!thanks