Investment Highlights

• We maintain our earnings forecasts and fair value (FV) of RM6.57 for Malaysia Airports Holdings (MAHB) based on 22x FY23F EPS. This is at a discount to the FY23F P/E of 44x 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 6).

• We downgrade our recommendation to HOLD from BUY following the recent run-up in the share price of the company, as investors priced in the travel recovery with the easing of air travel restrictions.

• MAHB's 9MFY21 passenger traffic came in at 21.9mil (Malaysia: 4.0mil; Istanbul: 17.9mil), falling by 43% YoY, mainly due to an 84% YoY contraction in passenger movements locally amidst low air travel demand caused by Covid-19 travelling restrictions. This is partly offset by a much stronger 71% YoY increase in passenger movement in ISG. Overall, its 9MFY21 total passenger traffic translated to only 5% and 66% of pre-pandemic’s passenger traffic at the airport locally and ISG respectively.

• In Malaysia, the 84% YoY passenger traffic deterioration is mainly because of a full 9 months’ impact of the pandemic (vs. only about seven months in 9MFY20 when the pandemic had just started). Not helping either is the resurgence of Covid-19 cases locally, which has caused prolonged restrictions on cross-border travel.

• On a brighter note, since 16 September 2021, Langkawi has become Malaysia’s first travel bubble programme for local tourists and it took off with a good start. According to MAHB, the average load factor in September 2021 has recovered strongly to close to the pre-pandemic level of 62.8% (vs. 68.3% in September 2019).

• Moving forward, we are optimistic on the recovery in passenger traffic locally, with the reopening of interstate borders and relaxed rules for fully vaccinated Malaysian residents to travel abroad from 11 October 2021 onwards.

Source: AmInvest Research - 20 Oct 2021