KUALA LUMPUR: Hwang DBS Vickers Research (HDBSVR) has upgraded MALAYSIAN AIRLINE SYSTEM BHD [] (MAS) to Hold with a target price of RM1.90 (from 1.70, ex-rights) based on 15x CY11F EPS, close to peers’ average.

The research house said on Tuesday, Feb 23 that it was optimistic about the longer term outlook for MAS.

“4Q09 saw RM287.4 million core net loss (vs RM407.2 million loss in 3Q09), bringing FY09 core net loss to RM2.3 billion. This is in line with our expectation but below consensus,” it said.

HDBSVR said MAS’ losses narrowed from 3Q09, helped by stronger cargo demand and yield as well as lower realised derivative expenditure/losses.

It believed FY10 will still remain a challenging year due to pressures on yield.

“However, we upgrade our call to Hold, considering the longer-term earnings turnaround in FY11 and bombed out share price (18% drop YTD).

“We changed our valuation method to PE basis from P/B to take into account the expected positive earnings going forward. The stock is trading at 15.2x CY11F EPS (ex-EI) and 4.1x FY11F BV (ex-mark-to-market gains/losses), compared to peers’ 13.5x and 1.6x,” it said.