MAS ripe for privatisation?

KUALA LUMPUR: The time may be ripe to take Malaysian Airline System Bhd (MAS) private as its share price may have reached its bottom, according to Maybank Investment Bank (Maybank IB) Research.

“MAS is currently trading at its cheapest valuation for the past 12 years. We think its share price has reached the bottom and now is at an opportune level to take it private,” Maybank IB airline analyst Mohshin Aziz said in a report.

He said MAS’ share price has plunged 16% since the MH370 incident, and is now trading at 0.87 times price-to-book value, consistent with its trough valuation in 2002 and 2008.

Maybank IB’s analysis suggested that the break-up value of all MAS’ profitable business units stands at RM4.154 billion (base case), representing an 18% premium to MAS’ current market capitalisation.

“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, adding that the story of MAS’ privatisation is not new and has surfaced time and again over the past decade.

“From time to time, market rumours surface about the possibility of it being taken private by principal shareholder Khazanah Nasional Bhd [which holds a 69.4% stake in MAS]. There were even rumours of a privatisation attempt by Tan Sri Syed Mokhtar Al-Bukhary’s group. None of these materialised,” he said.

“Many of the group’s [MAS] business units are profitable and performing well. If they were to be listed as standalone companies, this can unlock significant value for the shareholders. Singapore Airlines (SIA) has performed this strategy with great success.”

Many of SIA’s business units became separate standalone public-listed companies, including SIA Engineering Co Ltd, Singapore Air Lease Enterprise (sold to Bank of China Aviation in 2006) and Singapore Airport Terminal Services Ltd.

An analyst expressed his reservations that the privatisation of MAS would address the long-standing, fundamental issues faced by the airline.

“What major difference does it make if MAS is privatised? It doesn’t quite address its fundamental problems — unions will still be there and can still voice out their dissatisfaction to the public even if MAS is a private company.

“It doesn’t solve pricing power issues or the fact that KL is a weaker hub relative to Singapore and Bangkok, the bloated workforce, nor the inflated CASK [cost of available seat-kilometre] currently,” he said, adding that any further capital injection would still be borne by Khazanah, which consists of taxpayer’s funds.

“Deterioration in book value of its airline operations looks likely to continue [given continued losses] and as such, it is still uncertain whether we are already at the bottom of the valuation cycle,” he said.

According to Maybank IB, some of the merits of the privatisation of MAS include the reduction of media scrutiny and the lesser undue pressures,

“The pressure and demands of a public-listed company are huge — significant resources are required to comply with regulatory requirements, and sometimes the management has to reveal information publicly that would otherwise negate the company’s position,” it said.

Maybank IB upgraded MAS to “hold” from “sell”, with a revised target price of 22 sen.

MAS’ share price closed 0.5 sen higher at 21.5 sen yesterday, giving it a market capitalisation of RM3.59 billion.


This article first appeared in The Edge Financial Daily, on April 17, 2014.