Tuesday, December 21, 2010

Kamdar Ingress, Airasia, PLUS, MAS,

Kamdar: 19% of its stakes will traded off market at 30 sen a share on 20 Dec 2010. Another large block was traded for 2 million shares at 30 sen a share on last Friday. Its NAV is 91 sen a share. A substantial assets were its properties though is a textile retailer. More than half of its rm154 million property, plant and machinery were in freehold land and building across the peninsula, includes in Penang and Jln Tuanku Abdul Rahman in KL The group did not adopt a policy on regular revaluation of its landed properties. Should Kamdar undergo revaluation, the value of its landed properties could rise further from their historical book value.

As at Sept 30, Kamdar had rm152 million worth or properties, plant and machinery, rm104 million inventories and rm22 million cash. Its borrowings were high at totaling rm103 million. Its net debt of rm81 million translated into a net gearing of 45%. Its y-to-y net profit rise to rm5.3 million on rm63 million revenue. For nine months ended Sept 30, 2010, its net profit increased to rm9 million.

Ingress: Its 3Q ended Oct 31, 2010 net profit dipped to rm2.09 million from rm4.7 million previously despite higher turnover in its auto business.

Airasia: Luxembourg based fund, Genesis Smaller Companies SICAV has been reducing its stake in Airasia with the recent disposal of 6.84 million shares as at Dec 14, 2010. Airasia’s largest shareholders are Tune Air Sdn Bhd (26.12%), Capital World Investors (8.53%), the EPF (7.82%), Genesis Smaller came in with 5.37% stake. Sources say Genesis Smaller wants to take profit on its investment in Airasia.

PLUS: Industry observers is skeptical about Jelas Ulung Sdn Bhd’s bid to take over PLUS for rm26 billion due to it lacks financial plans and key details. Concerns are on the financial implications or recourse later. It also failed to see any investment return for Jelas Ulung. Jelas’s offer lacked other crucial details … Its offer was silent on the concession period which led observers believe that Jelas Ulung could seek for quite an extension. Jelas also silent on the capex. Apart from valuations, the government would consider the bidder’s track record and financial statu

MAS ...

Its expansion took off in 2007 when the airline turned around earlier than expected. It placed orders for 35 B373-800 planes, which cost some US$2.7 billion at list price.

MAS will have the youngest fleet in the region in 2015.

These new and more fuel efficient plans will allow the airline to enjoy lower unit costs and fly new routes that were not viable before because of its ageing fleet.

With the new plane purchases, MAS is also leaving behind its asset light days under its WAU Agreement with the government.

Back then, MAS did not own its planes but leased them from Penerbangan Malaysian Bhd.

Moving forward, MAS’s new fleet ownership model will see it owning 33% of its fleet and leasing 33% while the rest will either be leased or owned, depending on market conditions. The objective of such ownership is to reduce lease payments while gaining operational efficiencies.

The question is will expansion pay off for the full service carrier when the industry is challenged by ultra competitive LCCs that are encouraging on traditional airlines’ home turf?

The deployment of new planes means a heavier balance sheet for MAS. This is currently a concern, given MAS’ negative cash flow as at Sept 30, 2010.

Negative cash flow is not a good sign for any company, especially like MAS, which needs strong cash flow to meet its obligations in the purchase of new planes.
Be that as it may, MAS is sticking to its plans to expand in 2011.

Its official said that despite the negative cash flow in the first nine months if 2010, MAS actually saw a q-to-q improvement. Although 3Q is seasonally its weakest quarter, MAS recorded positive operating cash flow of operating cash flow of RM190 million for the period.

Its official is not too concerned at this stage because MAS has worked out the cash flow that is expected over the next five years and what sort of capital it needs to run that cash flow.

The amount that MAS raised from the rights issue in March 2010 is expected to cover cash flow for the next few years and keeping gearing at the right level.

MAs already secured long term financing for the planes due for delivery in 2011.

In March 2010, MAS launched a rights issue to raise rm2.7 billion. The largest subscriber for the exercise was Khazanah which currently (Dec 2010) owns 69.3% stake.

The air travel is vulnerable to economic downturns and etc … However for LCCs like Airasia, economic crisis present opportunities because travelers usually opt of cheaper fares during such times leaving FSCs like MAS with even fewer seat factors.

In fact, due to competition from the LCCs, the FSCs are having a tough time enhancing yields.

The question is how low can MAS unit costs go and how fast can it make money out of its new planes?

One area that MAS has to watch is its fuel costs which account for 30% to 35% of its total operational costs. It is worth noting that MAS has hedged 33% of its 2011 requirements at US$93 per barrel.

However, given that MAS is in growing phase, how much of costs can it reduce? It is worth noting that the lower unit cost the fewer the seats that need to be sold on each flight to be profitable. So it an airline’s unit cost is low, it may only need to fill half its seats to ensure that the plane takes of and is profitable.

Creating value is perhaps why MAS has emphasized the need to change the way it operates. Soon after its turnaround in 2007, MAS’ management team engaged in a comprehensive forecast exercise to prepare a business plan for 2008 to 2012.

The exercise showed that without transformation, the airline stood to lose as much as RM650 million to RM1 billion in 2012, which partly explains why MAS has taken the route of expansion.