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AFX News Limited
Malaysian Airline returns to profit in 2007, exceeds financial targets - UPDATE
02.25.08, 7:10 AM ET

KUALA LUMPUR (Thomson Financial) - Malaysian Airline System (MAS) said Monday it returned to profit in 2007 and even managed to exceed all its financial targets after reporting a net loss the previous year.

The national airline said fourth-quarter net profit rose to 242 million ringgit from 122 million a year earlier on improved yields and strong passenger demand.

Full-year net profit jumped to 851 million ringgit from a net loss of 136 million ringgit in 2006.

Consensus estimates had put MAS' net profit at 592 million ringgit for 2007.

The national airline also declared a dividend of 2.5 sen a share.

MAS' fourth quarter revenue rose 8 percent from a year earlier to 4.07 billion ringgit after passenger revenue grew 14 percent.

For the full year, revenue was up 13 percent at 15.3 billion ringgit on strong passenger demand and sustained yield improvements.

Operating profit improved to 798 million ringgit from a loss of 296 million ringgit previously, on a robust 71.5 percent passenger load factor and yield which rose 12 percent to 27 sen per revenue passenger kilometer.

'We have come a long way from our 1.3 billion ringgit losses and near bankruptcy in 2005 to achieve this record profit in just two years,'' the company said in a statement. 'We also have money in the bank, a healthy cash position of 5.3 billion ringgit which we will use to grow MAS.''

'We have exceeded all our financial targets and surpassed our 2007 stretch (or maximum) target of 300 million ringgit by 184 percent,'' it said.

'We will utilize the cash surplus (of 5.3 billion ringgit) for aircraft purchases. Quite a bit of the cash will be set aside for that, and some of the money will be used to automate a lot of our processes and to improve our customer services and to reduce costs,'' said chief financial officer Tengku Azmil.

Azmil said the airline is also in the midst of formulating a new dividend policy but he ruled out the possibility of paying a one-off cash return.

'I can't give you the details until we have finalized the numbers. We will look at a very holistic capital management policy.''

The dividend policy will be announced sometime this year.

'MAS is well positioned to grow organically and when the (M&A;) opportunity arises, we will be able to grab the occasion too,'' said Idris Jala, chief executive of MAS, when asked about the airline's merger and acquisition activities.

Recent media reports have said the government is open to the idea of cutting its stake in the company to enable MAS to establish a strategic partnership with other airlines.

Idris said he expects challenging times ahead despite the swing to profit in 2007.

'With the record profits, we are not declaring victory. The world is going to get relatively hard in the next few years (and) with a tough and competitive environment, we could lose a lot of money.''

He said barring any exceptional circumstances, the airline aspires to achieve its stretch profit target of 1 billion ringgit in 2008.

The outlook for the cargo business looks good despite the 2 percent drop in cargo revenue in the fourth quarter due to stiff competition, said Idris.

The national airline's cargo unit, MasKargo, has entered into a global partnership with the world's largest freight forwarder, DHL Global Forward, and with DB Schenker.

The MAS chief said the potential revenue of the two partnerships can surpass 350 million ringgit annually.

On the impact of high oil prices, Idris said an increase of 1-5 US dollars per barrel will have a 50-250 million ringgit impact on its bottom line.

'MAS will diligently mitigate the impact via an increase in fuel surcharge hedging and fuel efficiency,'' he said.

On the status of MAS' orders for six Airbus A380 aircraft, chief financial officer Azmil said talks are in their final stages but nothing has been confirmed. MAS has asked for compensation for delays in the delivery of the aircraft.

'We are continuing our discussion with Airbus. We have made some decent progress over the last few weeks but we are still talking and we have not finalized anything yet,'' said Azmil.

(1 US dollar = 3.22 ringgit)


-- by Soo Aipeng --



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