MAS- a swift end to a sharp rally?

This morning, one of my clients wrote to me about whether he should keep his MAS. This was my reply:

MAS had a huge Rights Issue of 4-for-1 in April at RM0.23 each. The current shareholders would have a lot of shares at much lower prices to sell in the event of a strong run-up.

The huge Rights issue has ballooned up MAS's issued shares to 16.7 billion units. This means that its market cap is now at RM6.3 billion (based on current price of RM0.38). You may compare that with Airasia with outstanding shares of 2.78 billion & share price of RM3.17; thus a market cap of RM8.8 billion. Airasia makes a net profit of RM1.9 billion (partly due to recognition of the value of Airasia Thailand after its listing on the SET which yielded a gain of disposal of 4%-interest of RM120 mil & fair value gain on remaining 45% of RM1.040 billion). Mas incurred a net loss of RM433 million last year.

The chart shows that the stock is still in a downtrend. In the past, it has attempted to break above the downtrend line but there were two instances of bull trap. My concern is that this may also be a bull trap.

Based on the above, you may want to take profit at RM0.40.

Chart: MAS's daily chart as at August 19, 2013_11.00am (Source: Quickcharts)

At 2:00pm, Najib announced that the government has no plan to privatize MAS. With that announcement, MAS play should come to a swift end.

 

Note: In addition to the disclaimer in the preamble to my blog, I hereby confirm that I do not have any relevant interest in, or any interest in the acquisition or disposal of, MAS.