Malaysia Airlines rated 'hold', business plan unclear - Kenanga

Kuala Lumpur (Thomson Financial) - Kenanga Investment Bank said Wednesday it is rating Malaysia Airlines (MAS) a "hold" as the national carrier's recently released business plan did not specify exactly how it can achieve a net profit of 1.5 billion ringgit by 2012.

The investment bank has a target price of 4.80 ringgit on MAS.

At 12.09 pm, MAS was up 4 sen or 1.0 percent at 4.50 ringgit.

MAS said recently its annual net profit may hit 1.5 billion ringgit in five years as it enters a new growth phase under a new business transformation plan.

"MAS believes that if it aims for the best and stretches its limits, it can achieve an annual profit of 1.5 billion ringgit by 2012 even after factoring in the challenges in the industry such as overcapacity, air traffic liberalization and rising fuel costs," it said.

MAS said a major strategy to achieve its profit targets is to turn itself into a "five-star value carrier" offering premium services at competitive rates.

"You need a battle plan in the battlefield,'' said Kenanga.

"Instead of answering pertinent questions and unveiling detailed plans on how MAS could achieve sustainable growth and 1.5 billion ringgit net profit by 2012, the business transformation plan simply repeated the concept of a five-star airline at low-cost carrier (LCC) cost."

The investment bank said its key concern is MAS' competitive strategy going forward, "be it cost leadership, differentiation strategy or a combination of other strategies and its implementation plan."

"With scant details, it is most difficult to assess on its achievability," it said.

"Realistically, MAS' cost structure can never be lowered to a LCC level such as (Malaysian budget airline) AirAsia's," it said.

Other questions that remained unanswered include the national airline's fleet rejuvenation program, route development and expansion, future plans for units MASKargo and Malaysian Aerospace Engineering (MAE), said Kenanga.

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