Investment Highlights

• We now project MAHB’s net loss in FY20F to be narrowed at RM203mil (vs. RM301mil we projected previously), while leaving our FY21–22F numbers relatively unchanged. We fine-tune our fair value to RM6.64 (from RM6.60 previously) based on 22x revised FY22F EPS. This is at a 40% discount to the FY22F P/E of 36x of its 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. Malaysia Airports (MAHB). Maintain BUY.
• MAHB's 1HFY20 core net loss of RM51mil came in narrower than expectations, vs. our full-year net loss forecast of RM301.3mil and the full-year consensus net loss of RM301.8mil. We believe the variance against our forecast came largely from better-than-expected commercial incomes and improvement in cost structure (particularly, cost of inventories sold and depreciation).
• MAHB's 1HFY20 revenue fell by 52% YoY on the back of a 61% contraction in passenger movements amidst low air travel demand due to Covid-19 infections.
• Our earnings upgrade is mainly to reflect higher commercial incomes (particularly, milder shortfall in rental revenues) and improved cost structure as seen in the results.
• MAHB reiterated its target to reduce operational expenditure by 20% YoY (thus far in 1HFY20, it achieved 17%) via efforts such as closures of underutilised areas, optimisation of airport operating hours, scheduling of maintenance in accordance with passenger movements, rebalancing of fixed and floating loans to capitalise on the low rate environment, deferment or cancellation of noncritical expenditure, as well as containment of staff cost.
• The airport operator also plans to defer its capex of up to RM1.5bil to conserve cash. As such, it will only incur ~RM320mil capex in FY20F. Meanwhile, it has managed to secure up to RM1.4bil fresh loans to shore up its liquidity. It is requesting for the deferment of ISG's utilisation fees of €114.8mil (RM566mil) for 2021. It will also expedite its divestment of non-strategic assets such as the Hyderabad airport which could potentially raise RM440– RM520mil.
•  We continue to like MAHB as: (1) we believe the air travel and tourism industries will gradually return to their growth path post- pandemic; (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 - 28 Aug 2020