[WHERE TO PUT YOUR MONEY AFTER MALAYSIA AIRLINES MH370 DISASTER : ONCE IN LIFETIME OPPORTUNITIES BY DR NAZRI KHAN]
I say it again. Malaysia Airlines (BURSA : 3786) is a super excellent buy for long term investors. A perfect buy for three year holding period. Note that MAS is now trading at super cheap Price Book of 0.8 and exactly one fifth of its original par value of RM1.00. Its financials now stand with Debt RM11bil, Cash RM4bil and 2013 losses RM1.2bil.
My personal view, regardless of all MH370 Grand Theory (mostly illogical) being bandied around from (1) poor weather (2) pilot error (3) engine failure (4) Xinjiang Separatist aka Chinese 9/11 (5) pilot commit suicide (6) Asian Bermuda Triangle (7) Airasia Ops Telanjang Attacks (8) Anwar Ibrahim Court Diversion, MAS will definitely suffer loss of confidence in the short term which open up a huge buying opportunities for long term investors.
As we know MAS is facing its most severe turbulences that threatens its very survival. Hence, I personally speculate two things may happen to MAS now. Privatisation or Bankruptcy Protection.
While I believe the latter is extremely & highly unlikely (given MAS strong intangible asset), both scenario may reinvent stronger MAS over three years time frame. If there is any case, Japanese Airlines is a good example which rose miraculously from 5 Japanese cents (a day before delisted from Tokyo Stock Exchange in January 2010) to as high as Japanese Yen 3,790 immediately on relisting day in September 2012 (an absolute gain of 75,800% after three years of painful restructuring ie. cutting a third of its workforce, cancelling unprofitable routes and replacing older planes).
Three major reasons why I believe MAS is a fail-proof-long-term-investment (1) Government will not let MAS go under due to its massive strategic role to Malaysian economy (2) MAS has lasting intangible asset namely Best Airline Brand, Best Cabin Crew & Safest Airline Track Record (3) MAS has numerous business sharks ready to pounce on cheap privatisation.
The Most Likely Scenario : Privatisation, White Knight & New Leadership :
With MAS price now standing at dirt cheap of RM0.23, privatisation attempt may be highly viable as the total acquisition cost is a cheap RM4bil (MAS Total Market Cap as at Monday 10th March is RM4.1bil, the lowest in its 50 years business history). Judging from the highest volume transaction spotted yesterday, I expect more bidding sharks to quietly accumulate for control after the last Airasia-led privatisation attempt was aborted in May 2012. Exactly what we see yesterday, MAS fell the most since June 2013 (11% plunge) but made a strong turnaround to 24 sen with volume at 39.96 million shares, the highest single day transaction ever in one year. If this scenario materializes, expect MAS share price to range bound (say RM0.15 to RM0.30) with mysteriously active trade sparked by insider accumulation.
The Unlikely Worst Case Scenario : Bankruptcy Protection
Should operation continue to bleed, MAS may have no choice but to trigger a drastic bankruptcy protocols to break out from the financial doldrums and close it under creditor protection. This is highly unlikely but is still MAS last option to deal with its legacy hurdles namely the demanding union politics, overstaffing and lopsided procurement contracts (from engineering, maintenance to catering). Filing for bankruptcy under Section 176 of the Malaysian Companies Act will give MAS a fresh start and emergency room to resuscitate its operation and do what is necessary to face the cut throat competition (which include selling business units and shed staff as Japanese Airlines did). This scenario however is remote in probabilities given that MAS has strong intangible assets and MAS shareholder, national asset manager Khazanah Nasional has consistently ruled out winding down the airline. If this scenario materialize, expect a Flash Crash on MAS share price with RM0.10 as the most likely downside target for aggressive buy.
As for strategy, expect the following stocks to be the biggest losers from MH370 disaster :
(1) Airport Operator : Malaysia Airports (Bursa : 5014) : SELL
If security concerns are to be blamed, we should expect Malaysia Airports to impose more measures at higher cost. Don’t forget the repercussion may also create flight delay & cancellation, adding to the bottom line of Malaysia Airports.
(2) Tourism Player : Genting Malaysia & Shangrila (Bursa : 4715 & 5517) : SELL
Tourism may plummet in the short term, causing marginal loss with Genting as the most vulnerable targets. Following this, we should expect hotel occupancy to fall as well due to psychological distress and shorter tourist tenure immediately after the event.
(3) MAS Partner : China Southern Airlines (HKEX : 1055) : SELL
MAS operational code-share partner will get the immediate negative impacts from the repercussion as reflected by China Southern Airlines which fell 3.85% on the Hong Kong stock exchange.
(4) Insurance : Willis Group Holding (NYSE : WSH) : SELL
Willis was the broker for Malaysia Airlines liability insurance cover. The size of the potential claims for workers/clients compensation following the disappearance of a Malaysia Airlines jetliner can be in the tens to hundreds of millions depending on the results of the investigation.
The following companies may set to be the biggest winners :
(1) MAS Competitor : Airasia (Bursa : 5099) : STRONG BUY
The missing of MH370 will trigger short term loss of confidence for MAS and results in last minute cancellation of booking with competitors such as Airasia and Malindo to stand the most from the disaster. This is especially true given AirAsia recent foray into the medium-range (five and eight hours flight) to further steal booking of Malaysia Airlines specifically with flights to Japan and Australia.
(2) MAS Supplier : Brahim (Bursa : 9474) : STRONG BUY
Regardless of MAS direction, Brahim stand to win as the contract has been fixed and MAS must pay RM250 mil a year until contract ends in year 2028.
(3) Technology Communication Software & Security Hardware : Willow, Vitrox, iTronic and KESM (Bursa : 0008, 0097, 9393 & 9334) : BUY
The incident may force substantial resources to be put towards improving security, in the areas of communication technology be it hardware or software.
In conclusion, Buy MAS for three year time frame. Buy Airasia & Buy Brahim for one year time frame. Sell MAS for one month time frame
Good luck and all hearts to the victims of MH370.
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