Too risky to buy into MAS now: Analysts

PETALING JAYA: Malaysian Airline System Bhd's (MAS) share price, which slumped as much as 4 sen or 21.05% yesterday on fears of it filing for bankruptcy, may be attractive now but analysts warn that such a bet may be too risky to make.
An analyst who declined to be named said even though the airline's share price at 15.5 sen may be appealing at the moment the uncertainties surrounding its future make it too much of a risk to take.
"MAS has been bleeding this couple of years, if the government and MAS itself do not address the problem properly, the situation could be very severe," he said.
The analyst said there is a possibility that MAS could be wound up if its financial performance still doesn't improve in the coming quarters, thus it may not offer a good buy in opportunity.
"Cost structure is still the main issue for MAS, if it is wound up, investors may need more time to realise their investments," he added.
MAS' share price fell 1.5 sen to 17.5 sen just after the opening bell and hit as low as 15 sen on heavy selldown pressure. It closed 3.5 sen or 18.42% lower at 15.5 sen.It was the top most active stock with some 412.25 million shares changing hands.
At an intra-day low of 15 sen, MAS's share price was trading at a 6 sen or 28.57% discount to its net asset per share of 21 sen as at end-March 2014.
Last Thursday, MAS announced that it fell deeper into the red in the first quarter ended Mar 31, 2014, making a net loss of RM443.39 million due to depreciation, amortisation, impairment and finance costs.
It admitted that the tragic MH370 incident on March 8 had a dramatic impact on the traditionally weak first quarter performance.
MAS has been making losses since FY11, with a net loss of RM2.52 billion, RM430.74 million and RM1.17 billion from FY11 to FY13, respectively.
Following the announcement of the worst quarterly financial results in two years, Najib in an interview with the Wall Street Journal last week said that it might be too late to "save" MAS following the disappearance of the MH370 flight, and bankruptcy could be a solution for MAS.
"We have to look at it from all angles, bearing in mind that MAS is a government-linked company. It's not a private company, so there are certain repercussions in what you want to do in terms of how it is received by the employees and the general public," said Najib.
Hong Leong Research and Kenanga Research have downgraded MAS' target price from 16 sen to 14 sen following the huge losses it made for the first quarter of the year.
Maybank Research, meanwhile expects MAS to record a larger net loss of RM1.2 billion this year and continue to be loss making up till 2016.
In the last two years alone some RM10.9 billion has been raised for MAS, through a rights issue and Islamic bonds issuance. The Islamic bonds were done by a special purpose vehicle owned by the Finance Ministry to buy planes in mid-2012.
RHB Research said in an analysts briefing last week, MAS had indicated that there are restructuring plans in place to improve current situation but is not ready to share yet.
"Guidance given was quite vague, but the main focus will be on rebuilding the MAS brand name, reviving its sales channels after the two months of 'black-out', leveraging on its alliances' network and being more proactive and decisive in capacity planning.

"Cost savings efforts will continue and will focus mainly in productivity, fleet renewal and improve efficiency," it said.
It was also speculated that MAS may retrench 10% of its workforce as part of its restructuring plan, expected to be announced in coming weeks.
Meanwhile, the Malaysia Airline System Employees Union (Maseu) urged the government to appoint a new management team for MAS and opined that bankruptcy is not a solution for the airline that has about 20,000 staff. It said it is confident MAS will be able to turn around in a year if there is a new management team with aviation know-how on a board.