(Adds analyst comment and background)
KUALA LUMPUR, April 12 Shares in Malaysian Airline System Bhd (MAS) fell as much 9.1 percent on Friday after the company confirmed a 3.1 billion ringgit ($1.02 billion) rights issue.
"This is expected, there could be significant dilution to the share base," Sharifah Farah, an analyst with Kuala Lumpur-based Affin Investment Bank, told Reuters.
Earnings per share may see an 80 percent dilution if the right issue is fully accepted, she added.
The brokerage maintained a 'trading buy' call on the company's shares, citing cost and revenue improvements and efforts to renew its aging fleet.
The stock fell over 20 percent in November when the rights issue was announced, in what several analysts described as a knee-jerk reaction.
Malaysian Airlines said the funds raised would go towards working capital, repaying debt and buying aircraft for which 977.8 million ringgit would be set aside.
Kenanga Research said the entry of low-cost carriers such as Lion Air's Malindo Air could put pressure on Malaysian Airlines, although the company would benefit from the better loads and cost efficiency of its new aircraft.
Shares in Malaysian Airlines were 7.27 percent lower at 76.5 sen at 9:34 a.m. (0134 GMT) while the benchmark index gained 0.4 percent after reaching an all-time high of 1,716.47 points.
($1 = 3.0350 Malaysian ringgits) (Reporting by Al-Zaquan Amer Hamzah; and Siva Sithraputhran; Editing by Edwina Gibbs and Stephen Coates)