Why MAS Share Is On Cheap Sale?


by Koon Yew Yin
16th Aug 2013

As a long term serious investor, I have a closer look at the cheap share price of MAS. Why is it selling at 33 sen. about one third of its par value?

Many market analysts have already covered MAS and Idris Jallal has said that the company should be sold off as soon as possible. My intention of writing this piece is to help the BN Government decide to put in the final nail to bury MAS to save tax payers’ money. Obviously the Government did not see my previous article “Why MAS Is Still Flying” which I published about a year ago. It is important and worthwhile to include some of the points I mentioned earlier in my previous article.

The latest 1st quarter 2013 ending March shows that MAS lost Rm 279 million. In 2012, 2011 and 2010 the company lost Rm 433 million, Rm 2.424 billion and Rm 234 million respectively.

As usual, there are the incorrigibly optimistic cheerleaders for the airline who are unable to see the writing on the wall. These ‘experts’ are still touting that the company is in recovery mode and will soon be returning to profitability.

The market however sees the prospects for the airline differently. During the past few days the airline share has been trading around 35 sen level. This is about the lowest share price that the airline share has recorded during the past many years. Without the support of government-linked funds and left to market forces alone, it is possible that the share price of MAS will drop even more.

The recurring losses of MAS are a great mystery especially when they are compared with the performance of SIA. I972 Malaysia-Singapore Airlines (MSA) became MAS and SIA. In the last 10 years from 2002- 2011 SIA reported a total pre-tax profit of Singapore $13,992 million, averaging S$ 1.4 billion per year.

Should the government continue to bail out MAS?

The most recent losses bring the total losses of MAS to at least over $3 billion. In any normal business, any company incurring large and sustained losses would have closed down or gone into bankruptcy. This has not happened to MAS yet but I think the time is right – many observers will say, long overdue – for the government to withdraw the open cheque book extended to MAS.

When planning the future of MAS, it is important that the government avoids not only the past mistakes but also takes a rational approach based on economic fundamentals. One line of simplistic thinking is that there is a bright and profitable future for MAS since the number of air travelers continues to increase by about 5-7 percent per year.

But if you look at the history of airline industry profitability, this is not the case for airlines worldwide. The fact is the airline industry requires huge capital and produces poor returns on capital employed. Hence, year after year, many airlines produce poor profit margins or outright losses.

Why is it that an industry with year-on-year rises in sales cannot generate good returns to shareholders?

It all comes down to the economic structure of the industry. One of the forces that limit profitability is the intensity of the rivalry between the leading airlines. There is over-supply leading to pressure on prices. This is exacerbated by a high degree of freedom for new competitors to enter the industries.

If, say, an airline route between two destinations is found to be reasonably profitable it is not long before new entrants move in or current airlines simply move their planes to this profitable route.

It is truly an industry governed by the principle of “survival of the fittest”.

The ego and elections factor

It would seem that every developing nation wanting to show off to the world its progress MUST have its own airline, regardless of the impact on an industry already grossly over-supplied, and regardless of whether they have the ability to manage efficiently. So there is a regular stream of announcements of new airline ventures. Now that Malaysia has also done it and failed dismally.

The next logical question to ask is why doesn’t the Malaysian government allow MAS to fold up or go under?

There are two main reasons: Firstly, the perennial optimism of managers and shareholders. “Just one more chunk of money will see us break through into profitability as we rout the opposition!” seems to be the credo of these parties based on their self and not national interest.

Secondly, there is government interference. This factor however is less found now as many governments have learnt not to come to the rescue of their airlines.

Malaysia has not learnt these lessons – initially for reasons of national pride tied to the ego of leaders but now increasingly apparently to save jobs and to prevent the retrenched employees from voting for the opposition. This may make sense politically but it is poor economics.
Let MAS fly or crash without further interference or delay is the only way forward in the national interest especially since Idris Jallal has said that the company should be sold off as soon as possible!

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  1. #1 by sheriff singh on Saturday, 17 August 2013 - 3:10 am

    Must Always Save.

  2. #2 by pulau_sibu on Saturday, 17 August 2013 - 5:50 am

    one of the best airlines in the world (once upon a time, it was one of the worst). politicians are on their way to destroy this airlines

  3. #3 by Bigjoe on Saturday, 17 August 2013 - 7:28 am

    “When planning the future of ….., it is important that the government avoids not only the past mistakes but also takes a rational approach based on …………. fundamentals. One line of simplistic thinking is that there is a bright and profitable future for …… since the number of …….. continues to increase …………..by about …… per year.”

    You pretty much can say the same thing for UMNO/BN govt and Malaysia as a whole..

  4. #4 by waterfrontcoolie on Saturday, 17 August 2013 - 7:42 am

    You can’t run any institution if politicians are involved!
    The Gomen may own the corporation but a CEO ON CONTRACT should be appointed to manage it. This is the same story we all heard recently at local port anniversary that transshipment containers at Singapore cost twice as high as Port Klang [ in us$] on paper but the speaker could not explain as to why they are still nos 2! the speaker forgot productivity and assurance of delivery!!!!!

  5. #5 by yhsiew on Saturday, 17 August 2013 - 8:30 am

    Do the people managing MAS have the expertise and qualifications? Last time somebody just sold off some assets and claimed that MAS had turned around!

  6. #6 by Di Shi Jiu on Saturday, 17 August 2013 - 10:25 am

    Koon Yew Yin,

    Aiyah, why you ask this kind of question, ah?

    MAS shares so cheap so Syed Mokhtar don’t have to pay too much lah.

    Syed Mokhtar can get MAS for free but that one too suspicious, so better sell MAS cheap then nobody can say anything lor.

    So easy one you don’t know meh? Aiyah…..

    Heheheheh!! I haven’t tried that accent for a long long time :) Thanks for the opportunity :)

  7. #7 by john on Saturday, 17 August 2013 - 11:50 am

    Go ask the smartalec, the ONE Mamak but he’ll darn keep a Stup, grinning, owl-eyed Kok look and just pretend Dumb-dumb. What about the paid-off to Tajuddin, one example of how this ONE Mamak dubious rear-dealing, his favourite trademark – from the back !. ONE Mamak self-appointed himself as advisor Petrona instead of Mas – if TAR around he’ll be kicked out again, again,,,again.

  8. #8 by sheriff singh on Saturday, 17 August 2013 - 12:38 pm

    We did the WAU (Widespread Asset Unbungling), gone through many asset sales (like the HQ building), appointed senior bankers, Oxbridge people and ‘experts’ from MNCs, appointed so-called operational experts to head the operations of the airline.

    Yet we still failed.

    Let us be honest with ourselves.

    The airline is jinxed. It can’t be saved. Kill it.

    p/s we still want our money back from the above mentioned ‘experts’ and con-men.

  9. #9 by sheriff singh on Saturday, 17 August 2013 - 12:39 pm

    Your comment is awaiting moderation.

    We did the WAU (Widespread As$et Unbungling), gone through many as$et sales (like the HQ building), appointed senior bankers, Oxbridge people and ‘experts’ from MNCs, appointed so-called operational experts to head the operations of the airline.

    Yet we still failed.

    Let us be honest with ourselves.

    The airline is jinxed. It can’t be saved. Kill it.

    p/s we still want our money back from the above mentioned ‘experts’ and con-men.

  10. #10 by lee tai king (previously dagen) on Saturday, 17 August 2013 - 12:47 pm

    Bigots, monkeys and idiots with super-sized greed are in charge.

    Kick the umno cronies out of MAS and put someone else in – someone truly capable and yes umno politicians keep the phaaark out of the company. Then things will get better.

  11. #11 by sheriff singh on Saturday, 17 August 2013 - 12:52 pm

    ‘ … why doesn’t the Malaysian government allow MAS to fold up or go under? … ‘.

    Biiiiig cans of worms will be released.

    Don’t forget, several governments have stakes in the company including Brunei if I am not mistaken.

    It will be like a government company going bust with severe negative implications for the country’s credit worthiness if it does not pay its debts.

    Maybe we need Nor Mohd to suggest we do another multi-billion ringgit very, very soft loan to the airline to prevent it defaulting like for the Port people.

  12. #12 by sheriff singh on Saturday, 17 August 2013 - 1:01 pm

    Singapore Airlines and Silk Air use BIRDs as their logos. Birds fly and bring in the money.

    MAS on the other hand uses a KITE. Kites don’t fly on their own; they fall.

  13. #13 by sheriff singh on Saturday, 17 August 2013 - 1:05 pm

    What is the airline’s Net Tangible Asset (NTA) (if any) per share?

    Is it worth buying at 10 sen?

  14. #14 by sheriff singh on Saturday, 17 August 2013 - 1:06 pm

    Your comment is awaiting moderation.

    What is the airline’s Net Tangible As$et (NTA) (if any) per share?

    Is it worth buying at 10 sen?

  15. #15 by Sallang on Saturday, 17 August 2013 - 1:08 pm

    A good one, sheriff singh,
    ” MAS on the other hand uses a KITE. Kites don’t fly on their own; they fall.”
    In Chinese Feng Shui, Its all symbolic.
    In this case, it works for SIA and Silk Air.

  16. #16 by sotong on Saturday, 17 August 2013 - 5:23 pm

    A national airline, a national shame.

  17. #17 by Jeffrey on Saturday, 17 August 2013 - 6:39 pm

    Mr Koon Yew Yin says that 1st quarter 2013 ending March shows that MAS lost Rm 279 million. That may be so but it must not be forgotten that they have already pumped in tax payers’ monies to cover the hole and are turning MAS around at this moment. Its share price may be 33 sen but its net tangible asset per share is reportedly 56 sen (as per end March). Sure they spark talk of sale. And why not? If public like Mr Koon give support, it’s another excellent pretext & opportunity in the name of public interest to hive a chunk of MAS to cronies! Analysts from Maybank Investment Bank already recommended buy call on the stock based on forecast an RM384mil core net profit for current financial year ending Dec, 31, 2013 and RM724mil next year. The question as always is whether the sale purportedly is genuinely to save public monies in future or yet another excuse to give the stake to some cronies (after public monies have already been poured in the fill the hole); whether the sale helps the new buyers (cronies) asset-strip or help the airline solve its problems (including taming its Union)?

  18. #18 by worldpress on Saturday, 17 August 2013 - 7:27 pm

    Special discount for cronies even lower, dont be surprised.

  19. #19 by Godfather on Sunday, 18 August 2013 - 12:22 am

    If no cheap sale, how can cronies benefit ? Remember that all the aircraft are financed by the government, the tax leases all guaranteed by the government. Even the latest preference share issue is guaranteed by the government, so where is the risk ?

    Which GLC can survive under truly competitive environments ? They will sell MAS to a crony with a buyback guarantee from the government. Then the crony will announce the purchase of 100 new aircraft and take the commissions upfront. Why worry, be happy.

  20. #20 by Godfather on Sunday, 18 August 2013 - 12:24 am

    You think they haven’t learned from the TR experience ? What they learned is that they have the opportunity to repeat that experience and some people are just going to be really really rich. All upside with no downside. It’s a win-win for UMNO. Only the taxpayer gets royally scr@wed.

  21. #21 by Cinapek on Sunday, 18 August 2013 - 12:35 am

    The shares are deliberately push down so that a crony acting as a proxy will buy MAS for a cheap price.

    This crony will then sell the shares to you-know-who, who will then turn the airline around with several phantom shareholders from the Govt leaders who are instrumental in divesting MAS. The reason why they cannot sell MAS directly to this you-know-who is because the MAS staff union will kick up a huge fuss.

  22. #22 by good coolie on Sunday, 18 August 2013 - 11:23 am

    Rename MAS to ‘SAM’. With that fearsome name, competitors can disposed off more efficiently.

  23. #23 by pulau_sibu on Sunday, 18 August 2013 - 1:27 pm

    flying international flights, you can see who are the ones in the business class. only under-developed countries would put their half past six officers and government servants in the business class, at the expenses of the people.

  24. #24 by Bigjoe on Monday, 19 August 2013 - 3:33 pm

    Mahathir says MAS should be privatized – reportedly his proposal was at 60 years fuel subsidy..Why no outraged at how ridiculous Mahathir believe that we owe his grandchildren not just a living but fortunes and luxury???

  25. #25 by cinaindiamelayubersatu on Monday, 19 August 2013 - 9:34 pm

    Bila jual air tin rm5 tapi masih rugi maknanya bodoh!!

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