Malaysia Airlines Investment

Outlook

Agenda

• COMPANY BACKGROUND

• CURRENT ISSUES

• STATISTICS/CHARTS

• CRITICAL ANALYSIS

• FUTURE OUTLOOK

• SUMMARY

COMPANY BACKGROUND

• Founded as Malaysia Airways Ltd. (MAL) in 1947.

• Malaysian Airline Systems (MAS) was established in October 1972, servicing 34 domestics routes and six international destinations

• By the end of 1987, MAS has spur growth as an international carrier, offering 34 domestic routes and 27 international destinations.

CURRENT ISSUES

• Current market position

• RM 2.5 billion loss for 2011

• Exceed the loss predictions of 15 Bloomberg analyst the 1.21 billion.

• Expected further loss for 2012 (strive for breakeven)

4.88

3.02

2.772.09

1.31

Malaysia Airlines 5-years Share Price

Singapore Airlines5-year Share Price

Air Asia5-year Share Price

World Airlines Net Profit

Malaysia Airlines 5-years Financial Performance

Malaysia AirlinesRevenue Contribution

Issues Contributing to MAS’s current operating losses

European Economic Crisis

• Fuel costs represents the largest portion of operating costs.

Rising Fuel Prices

Fuel Price Trends

Financial Analysis

• FV Calculations

MAS discount rate = -15%

InterestPV Price

(1/1/2007)PV lot (1000)

Time Period (n) FV Formula FV

0% 4.68 4680 5 FV = PV*(1+r)^n

46803% 4.68 4680 5 5425.47% 4.68 4680 5 6563.9

MAS 4.68 4680 5 2090

Analysis

Analysis

• Market Cap

2008 2009 2010 2011 2012 Current0

2000

4000

6000

8000

10000

12000

14000

16000

18000

Total

Total

Market Capitalization 2008 2009 2010 2011 2012 Current

4.88 3.02 2.77 2.09 1.31 1.363342.15 16,309.6910,093.29 9,257.76 6,985.09 4,378.22 4,545.32

Analysis

analysisAnalysis

analysis

Growth rate, g g = Retention ratio x Return on retained earnings

Growth Rate, g

(in RM'000) 2010 2009 2008 2007

Revenue 13,587,610 11,605,511 15,570,141 15,232,741

Profit/(Loss) before tax 282,036 491,832 290,881 882,333

Profit/(Loss) after tax 237,346 522,948 217,795 852,743

Retained earning 3,395,266 698,021 4,010,715 3,945,949

Retention Ratio 24.99 6.01 25.76 25.90

Return on Retained Earning (ROE)

0.07 0.75 0.05 0.22

Dividend Payout - - - 2.50

Price per share as at 31 Dec 2.77 3.02 4.88 3.89

Earning Per Share (EPS) 7.2 25.3 14.6 58.0

P/E Ratio 0.38 0.12 0.33 0.07

Growth Rate 1.75 4.51 1.40 5.60

Discount rate, RR = D1 + g P0

D1 = Dividend payout as at 31 Dec 2007P0 = Price per share as at 31 Dec 2007g = Growth rate

R = 2.5 + 5.6 = 6.24 3.89

Discount Rate, r

analysis

At 2007, the dividend payout is RM2.50 and the P0 (as at 31 December 2007) is RM 3.89, r = 6.24

No Growth from 2008 - 2011

Is there a growth

opportunity in MAS?

analysis

NPVGO = P – EPS / r

P (as at 31 December 2007) = RM 3.89 Earning Per Share (2007) = RM 58.00r = 6.24

NPVGO = P – EPS / R = 3.89 – (58 / 6.24) = - 5.4

Based on Year 2007, there is negative growth opportunity.

1. Joint venture with Air Asia to reduce operational cost

2. Revenue/ Yield Improvement(i) Suspending unprofitable routes

– Dubai, Cape Town, Johannesburg(ii) Spinning off ancillary

businesses such as cargo and ground cargo

(iii) Reduction of headcount

Turnaround Plan 2011

Speculation:• Positive: MAS needs talent, AA investment

growth and leveraging resources. • Negative: Under Government review,

Facing Union protests, Khazanah to buyback?

Malaysia Airlines AirasiaPercent Shares Swapped 20% 10%

Share Price at Swap 1.60 3.95Total Shares Outstanding 3,342.15 mil 2,778.32 mil

Market Cap at Swap 5347.44 mil 10974.36 milValue of Shares Swapped 1069.49 mil 1097.44 mil

Share Swap

• 6 Airbus A380 Super Jumbo purchase

• Add MYR 9.5 billion CAPEX expenditure • 2012 – MYR 6 billion• 2013 – MYR 3.5 billion

• Speculation: Increasing costs, can MAS sustain this?

CAPEX

Analyst Projection • Negative on the stock with more than 60%

placing a “sell” call• Reduce the target price on stock to RM1.04• Doubts on the turnaround plan

Speculation• Government bailout?• Funding of CAPEX?

Summary