mas-airbus-a330

What Happened?

The government of Malaysia announced that they will not be bailing out Malaysia Airline System (MAS:MK) this time round and the company need to resolve its own issue. The most likely event sooner or later is a restructuring by MAS. It seems like a possible turnaround for the company if it really take the dive and start its long delayed restructuring. However, as investors, it might be wiser to just watch from the sidelines. Why?

The Industry

Singapore Airlines (SIA:SP) a premium carrier that can be consider the best in the world earned roughly a 1% net income margin. MAS on the other hand, has made losses for the past three years, with total in excess of RM4 billion. That is even more than its market capitalisation. It shows alot about the industry and the management.

Investing Philosophy

However the more important issue here is for the investors. Investing should be a lifelong pursuit for value creation and not seeking a one hit wonder. If an investor decided to invest in MAS at this point, what is the investing standard he has set for himself? How must he view the next company facing bankruptcy? Should he be investing into companies like Silver Bird Group, Maxtral Industry (MXI:MK), Petrol One Resources, Sumatec Resources (SMTC:MK) and other companies facing bankruptcy? MAS do not seem to have any advantages over these companies.

If he has done that, rest assure his investing career will not last very long. Investing is not about fighting every battle, but wisely choosing your battles with the best odds in your favour.

Why should anyone get involved with a company that has been well known for its high cost, declining services standards and facing an industrial structural change. All for the hope that they might one day turn the company around. That might not be a wise idea, especially when there are much better bargains to be found all around us at the moment. If investors are interested in investing in companies going through restructuring, it might advisable to invest in a company coming out from restructuring instead of one going into a restructuring possibility.

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The information provided is for general information purposes only and is not intended to be any investment or financial advice. All views and opinions articulated in the article were expressed in Stanley Lim’s personal capacity and do not in any way represent those of his employer and other related entities. Stanley Lim doesn’t own shares in any companies mentioned above.

 

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