Investment Highlights

• We reactivate our coverage on Malaysia Airports (MAHB) with a BUY recommendation, valuing the company at RM6.60 based on 22x revised FY22F EP. This is at a 40% discount to the FY22F P/E of 36x of peer Airports of Thailand (AoT), to reflect Malaysia’s smaller tourism market vs. that of Thailand, coupled with a higher operating risk of MAHB’s Sabiha Gokcen International Airport (ISG) in Istanbul, Turkey.

• We project MAHB to record a net loss of RM301mil in FY20F, but turn around with net profits of RM383mil and RM498mil in FY21–22F on the gradual recovery of the air travel and tourism industries as the Covid-19 pandemic subsides.

• We project MAHB’s passenger traffic to contract by 60% in FY20F (slightly more cautious vs. a 49–50% contraction forecasted by Mavcom), but subsequently rebound by 75% in FY21F and further grow by 35% in FY22F. The key risk to our assumptions is the actual timing of the reopening of international borders as international passengers historically made up ~50% of MAHB’s total traffic (implied in our assumptions is that international borders will gradually reopen from end-2020/early 2021). Already, the Malaysia-Singapore border is slated for reopening from 17 Aug 2020, subject to travellers completing substantial paperwork and complying with a long list of conditions.

• On a monthly basis, MAHB’s passenger traffic has been on a recovery trend. From only 1% of the passenger traffic recorded the year before in Apr 2020 at the height of the pandemic, MAHB’s July 2020 numbers improved to 20% of the year before. We believe the passenger traffic could potentially recover to 50% of pre-Covid-19 level by the end of FY20F, mainly driven by demand from domestic passengers (particularly between East and West Malaysia), as well as improvement from the international passengers traffic (as cross-border travel gradually resumes).

• We like MAHB as: (1) we believe the air travel and tourism industries will gradually return to their growth path postpandemic; (2) MAHB is a good proxy given its dominance in the airport segment locally and its significant market share in Turkey; and (3) given its strategic position in the economy, we believe it warrants stronger support from various stakeholders that should help to tide it through the pandemic and the current downturn in the air travel market.

Source: AmInvest Research - 14 Aug 2020