Malaysian Aviation
PP16832/01/2013 (031128)
Malaysia
Sector Update
5 April 2013
Aviation
Overweight (from Neutral)
Cautiously Optimistic
BUY with caution. The aviation sector has underperformed the KLCI in
2012 due to depressed earnings, escalating fuel prices and regulatory uncertainty. The sector has de-rated with an average decline of 27.6% in 2012. 2013-YTD however saw our top pick, MAHB gaining 15% while the airlines are both up modestly with 6% rise in share prices. We are now Overweight on the sector as traffic growth will accelerate and profits will rise, in our view. Furthermore, valuations are undemanding and exhibit value. Volatile fuel price is the primary risk factor. Our top picks in order of preference are MAHB, MAS and AirAsia.
Mohshin Aziz mohshin.aziz@maybank-ib.com (603) 2297 8692
2012 was tough, but relatively well managed. In 2012, passenger traffic growth in Malaysia was 5.0%, lower than its 10-year CAGR of
7.0% and the regional peers’ growth of 5%-14%. This slower growth was due to MAS cutting capacity by 12% on its underperforming routes.
This action has benefited AirAsia and AirAsia X immensely as seen by their record load factors. Airlines across the region faced severe profit drops of 30%-40% YoY but Malaysian airlines performed much better;
AirAsia’s 2012 core net profit grew 0.3% YoY and MAS managed to reduce its losses by 44.5% YoY. MAHB posted a 2.2% YoY growth.
The worst is likely behind us. We think the current aviation cycle is about to turn from the bottom and enter into a consolidation stage. The global economy is showing early signs of improvement and this should help to accelerate traffic growth, stabilise yields and raise the sector’s earnings outlook. Consolidation typically lasts 6-18 months depending on the pace of economic growth and industry supply-demand balance.
But in Malaysia, things are heating up. Things in Malaysia are heating up due to the entry of a new competitive force namely
Malaysia
Sector Update
5 April 2013
Aviation
Overweight (from Neutral)
Cautiously Optimistic
BUY with caution. The aviation sector has underperformed the KLCI in
2012 due to depressed earnings, escalating fuel prices and regulatory uncertainty. The sector has de-rated with an average decline of 27.6% in 2012. 2013-YTD however saw our top pick, MAHB gaining 15% while the airlines are both up modestly with 6% rise in share prices. We are now Overweight on the sector as traffic growth will accelerate and profits will rise, in our view. Furthermore, valuations are undemanding and exhibit value. Volatile fuel price is the primary risk factor. Our top picks in order of preference are MAHB, MAS and AirAsia.
Mohshin Aziz mohshin.aziz@maybank-ib.com (603) 2297 8692
2012 was tough, but relatively well managed. In 2012, passenger traffic growth in Malaysia was 5.0%, lower than its 10-year CAGR of
7.0% and the regional peers’ growth of 5%-14%. This slower growth was due to MAS cutting capacity by 12% on its underperforming routes.
This action has benefited AirAsia and AirAsia X immensely as seen by their record load factors. Airlines across the region faced severe profit drops of 30%-40% YoY but Malaysian airlines performed much better;
AirAsia’s 2012 core net profit grew 0.3% YoY and MAS managed to reduce its losses by 44.5% YoY. MAHB posted a 2.2% YoY growth.
The worst is likely behind us. We think the current aviation cycle is about to turn from the bottom and enter into a consolidation stage. The global economy is showing early signs of improvement and this should help to accelerate traffic growth, stabilise yields and raise the sector’s earnings outlook. Consolidation typically lasts 6-18 months depending on the pace of economic growth and industry supply-demand balance.
But in Malaysia, things are heating up. Things in Malaysia are heating up due to the entry of a new competitive force namely