● Our thoughts go out to the families of those on board Malaysia Airlines (MAS) flight MH370 which disappeared over the waters between Malaysia and Vietnam five days ago. Despite the tragedy, work goes on with no change to routes and schedules. There are no plans to ground its fleet of B777s.
● Management indicated that there has been no change in booking patterns or a rash of cancellations while the New Straits Times reports of brisk business as usual for travel and tourist agencies. This weekend's Matta Travel Fair could provide better indications of the public's willingness to travel.
● Going forward, MAS will very likely need to pay higher insurance premiums for its fleet, while possible changes in airport security measures could lead to higher costs.
● Maintain our UNDERPERFORM rating with a RM0.20 target price based on 1x FY14E P/B. We estimate that a 1% drop in yields will result in MAS' FY14 losses increasing by 19%, while a 1 pp fall in load factor will result in losses rising by 24%.
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