Monday, May 30, 2011

AirAsia VS MAS

AirAsia Bhd's market capitalisation is now almost 80 per cent bigger than the national carrier Malaysian Airline System Bhd.

It was only less than a year ago when AirAsia's market cap reached parity with that of MAS, as both had a market cap of about RM7.5 billion.

In October 2010, the younger AirAsia was trading at the RM2.50 level, while the "senior" MAS was trading at the RM2.20 level.

AirAsia has attracted more than seven times foreign institutional funds into the company. Based on the recent annual report, foreign institutional funds own more than 22 per cent of the low-cost carrier. As for MAS, foreign institutional funds hold just less than 3 per cent.

Fortunes of both companies on the stock exchange and on the business field have varied. Since its listing, the budget carrier has only suffered two quarters of net losses, partly due to fuel price volatility. In contrast, MAS, its more experienced rival, has suffered nine quarters of net losses during the same period. 

In the most recent quarterly results, AirAsia posted a net profit of RM171 million, while MAS suffered a net loss of RM242 million.

"In hindsight, this is probably the best result one could have hoped for in a volatile oil environment, without fuel surcharges (they were only implemented on May 3) and in a seasonally weak Q1," said Nomura Research, commenting on AirAsia's recent financial performance in its report recently.

As at last Friday, AirAsia's market cap exceeded RM8.4 billion and is trading at its all-time high level of RM3.11 on May 11 2011 and at a price-earnings of 8.26 times. In contrast, MAS is now trading at a decade low of RM1.45, with a total market cap of less than RM5 billion.

Analysts generally are starting to express pessimism on the airline industry due to the high fuel prices. Fuel expenses constitute 48 per cent of AirAsia's operating expenses and 38 per cent of MAS.

"Nevertheless, we still prefer AirAsia as its low-cost structure puts it in good position to weather the high oil price," said an analyst at a local research house.

Moving forward, AirAsia's outlook is expected to remain brighter than MAS.

"Assuming all other variables remain constant, a fuel cost sensitivity analysis on AirAsia and MAS revealed that AirAsia will still be profitable unless jet fuel exceed US$190 (RM574) per barrel, while MAS will sink into the red if jet fuel remains above the US$115 (RM347) per barrel," said ECM Libra Avenue in a research report in March when crude oil prices were rallying.

Year-to-date, the budget airline's shares have appreciated by 20 over per cent, while MAS shares have slumped by more than 30 per cent.

Not only that AirAsia has created value for the minority shareholders, but the company's major shareholders also had the opportunity to cash out. During the first year AirAsia was listed, Datuk Seri Tony Fernandes had an indirect stake of 44.76 per cent. Today, he has less than 27 per cent indirect stake.

It is also not the first time Malaysia has witnessed a newcomer taking on an incumbent, and emerging as the winner.

As another analyst put it: "This is not the first time we saw a 'newcomer' surpassing the initial market leader. Another good example is Proton versus Perodua. Consumers are now more conscious on price and quality".

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