Investment Highlights

• We now project wider FY20–21F net losses of RM705mil and RM476mil for MAHB (vs. net losses of RM203mil and RM384mil previously), but keep our forecast for FY22F. We maintain our fair value of RM6.64 based on 22x FY22F EPS. This is at a discount to the FY22F P/E of 59x 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 9MFY20 core net loss of RM346mil came in wider than expectations, vs. our full-year net loss forecast of RM203.4mil and the full-year consensus net loss of RM455.2mil. We believe the variance against our forecast came largely from higher-than-expected cost structure, particularly, higher depreciation and amortization costs and also higher other expenses, coupled with lower-thanexpected revenue, mainly from commercial income.
• MAHB's 9MFY20 revenue fell by 59% YoY on the back of a 66% contraction in passenger movements amidst low air travel demand due to Covid-19 restrictions.
• Our earnings downgrade is mainly to reflect lower passenger movement forecasts now at 70% contraction YoY vs. 60% contraction YoY projected previously, taking cue from MAHB that passenger movement has contracted significantly again since the start of the third wave Covid19 infections and the second CMCO. We are also projecting weaker commercial income and higher depreciation and amortisation costs, and other operating expenses.
• MAHB reiterated its target to reduce operational expenditure by 20%–22% YoY (thus far in 9MFY20, it has achieved 20%) via efforts such as reducing staff costs, cutting utilities & maintenance costs (by closing underutilised areas, optimising airport operating hours, scheduling of maintenance in tandem with passenger movements), and deferring or cancelling non-critical expenditure.
• The airport operator also plans to defer its capex of ~RM1.5bil to conserve cash. As of 9MFY20, it has only incurred RM52.9mil, vs. ~RM275mil capex budgeted for FY20. Meanwhile, it has managed to secure up to RM1.4bil fresh loans to shore up its liquidity, on top of its other undrawn line of RM1.8bil sukuk. Its request for the deferment of ISG's utilisation fees of €114.8mil (RM566mil) for 2021 is still ongoing, and MAHB is confident that it is likely to obtain the approval. Locally, MAHB has obtained some relaxation on its Operating Agreement (OA) requirements for FY20 such as the MARCS qualification, as well as a deferment of 2020 user fees to April 2021.
• On top of that, MAHB is also working towards recovering its cash from stakeholders (including recouping its trade receivables from airlines/tenants and outstanding receivables from the government). It has collected RM332.7mil up till November from government-related outstanding balances, while it continues to seek another RM310.0mil for the costs on closure of Sepang International Circuit.
• 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 - 1 Dec 2020