Investment Highlights

• We now project a wider FY21F net loss of RM807.3mil for Malaysia Airports Holdings (MAHB) and a net loss of RM265.6mil in FY22F (vs. a net loss of RM687.6mil and a net profit of RM261.0mil projected previously).

• We retain our FY23F forecasts and fair value (FV) of RM6.57 based on 22x revised FY23F EPS. This is at a discount to the FY23F P/E of 32x of its peer, Airports of Thailand (AoT), to reflect Malaysia’s smaller tourism market vs. that of Thailand, and a higher operating risk of MAHB’s Sabiha Gokcen International Airport (ISG) in Istanbul, Turkey. Our FV reflects a 3% premium to account for our 4-star ESG rating (Exhibit 7). Maintain BUY.

• MAHB's 1HFY21 core net loss of RM468.5mil came in wider than our full-year net loss expectations of RM687.6mil but largely in line with the consensus full-year net loss estimates of RM814.1mil. We believe the variance against our forecast came largely from the slower-than-expected passenger recovery amidst a resurgence in Covid-19 cases both locally and regionally.

• MAHB's 1HFY21 revenue fell by 45% YoY on the back of an 85% contraction in passenger movements amidst low air travel demand due to Covid-19 travelling restrictions. This translates to only 1% of pre-pandemic’s passenger traffic at the airport locally. The YoY deterioration was due a full 6- month impact of the pandemic (vs. only about four months in 1HFY20 when the pandemic had just started). Not helping either, was the temporary erosion of commercial rentals from the extended relief package in response to the pandemic situation.

• In terms of cost, MAHB achieved a further 12% core operational savings via efforts such as containing staff, utility and maintenance costs. Moving forward, the group’s joint initiative with Tenaga Nasional to modernise KLIA’s district cooling plant will bring about additional savings of more than RM50mil per annum throughout the 20-year concession period which commenced in July 2021.

• Our earnings downgrade is mainly to reflect a 60% YoY contraction in passenger volume in FY21F (vs. a 20% contraction projected previously) amidst the sustained high Covid-19 cases locally, that will further delay the recovery in the air travel industry.
   
• The Key Takeaways From Its Analyst Briefing Yesterday Are as Follows:

1. MAHB has access to RM3.1bil funding comprising: (1) RM1.3bil in ready revolving credit facilities; and (2) RM1.8bil unutilised sukuk facility. It also reiterated that it continues to enjoy the indefinite deferment of ISG's utilisation fees of €115mil (RM571mil), as well as the extension of ISG's term loan by two years to 2025, with a payment holiday in Dec 2020 and June 2021. It will only repay €10mil (RM50mil) in FY21F.
2. Its commercial reset and new rental model has been rolled out successfully, attracting the participation from highly sought-after brands and reputable companies, stimulating high capex investment by tenants as well as retaining existing tenants. At present, its occupancy rate for KLIA stands at 76% (vs. 90% prior to the pandemic). While commercial rental revenues could be muted amidst low passenger traffic at the airport now, MAHB is confident that the new revenue model tied to passenger traffic will offer it more upside over the long run as the air travel market normalises.
3. Locally, MAHB will continue to enjoy relaxation on certain requirements under the operating agreement (OA) such as the qualification for marginal cost support (MARCS), i.e. a government support framework, as well as further deferment of user fees. Meanwhile, MAHB said MAVCOM is conducting an economic study on the passenger service charges, and is expecting to conclude the first review by 2Q2022.

• We continue to like MAHB as: (1) we still believe that the air travel and tourism industries will eventually return to the growth path as the pandemic gradually comes under control with the large-scale rollouts of vaccination globally; (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 - 24 Aug 2021