'Time is right to privatise MAS'

PETALING JAYA: Maybank Research Bhd believes that now is the right time for Khazanah Nasional Bhd to take Malaysian Airline System Bhd (MAS) private and list the carriers' profitable units as standalone companies.
Maybank Research Bhd's analyst Mohshin Aziz said that if MAS' profitable businesses are spun-off and separately listed with Khazanah ceding a 30% stake, Khazanah could get back RM1.25 billion cash.
Assuming a 10% premium on the current share price, Mohsin said, the privatisation would cost Khazanah Nasional RM1.18 billion.
"Our analysis suggests the break-up value of all of MAS' profitable business units is RM4.15 billion (base case), which is a 18% premium to MAS' current market capitalisation," he said in a research report yesterday.
However, he feels that the intrinsic value of RM4.15 billion is a conservative one and could see more upside as the sum of parts valuations of the parent airline and MASKargo was not considered.
"Should the unprofitable business units (parent airline and MASKargo) manage to successfully turn around in the future, there is more value to be crystallised," Mohshin said.
Despite the issue of flight MH370 which will undoubtedly contribute negatively towards MAS financials, he firmly believes that by 2015, the parent airline will perform better thanks to its fleet rejuvenation and the benefits of cost cuts.
"Based on this outlook, it is ideal to privatise MAS in 2014, and perform the necessary restructuring ahead of the multiple listings in 2015," he said.
MAS business units are segregated into two groups namely airline and non-airline related.
The parent airline, MASKargo and FlyFirefly make up the airlines related business, while the non-airline business segment includes its airport terminal services unit and MAS Engineering.
In addition, MAS also has non-controlling stakes in Brahim's Holdings (30%) and Kuala Lumpur Aviation Fuel Services (15%), a subsidiary of Petronas Dagangan Bhd.
"We assume Firefly, MAS Engineering and MAS Airport Terminal Services will be listed individually, and MAS' stockholdings in Brahim's and KL Aviation Fuel Services will be sold," said Mohshin. He however was unable to derive the book value for the parent airline and MASKargo as the information was not disclosed.
He mentioned that Singapore Airlines (SIA) have performed the strategy of breaking the group into separate standalone public listed companies with great success.
"SIA's historical experience has proven that the group has become more efficient and hungry for growth, in our view. The subsidiaries can count on SIA as their anchor customer, but must work hard to attract third party customers in order to drive profits and the company's share price."
Mohshin noted that MAS is currently trading at its cheapest valuation in the last 12 years. MAS' shares closed up 2.38% to 21.5 sen yesterday.
"We think its share price has reached the bottom and now is an opportune level to take it private," he said.