Investment Highlights

• We maintain our forecasts and fair value (FV) of RM6.57 based on 22x FY23F EPS. This is at a discount to the FY23F P/E of 46x 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 HOLD.

• MAHB's 9MFY21 core net loss of RM653.8mil came in within our and the consensus’ full-year net loss expectations of RM807.3mil and RM863.0mil respectively.

• MAHB's 9MFY21 revenue fell by 30% YoY on the back of a 40% contraction in passenger movements (Malaysia: -83% YoY; Istanbul: +43% YoY) amidst low air travel demand due to Covid-19 travelling restrictions. This translates to only 21% of pre-pandemic’s passenger traffic at MAHB’s airports (Malaysia: 5%; Istanbul: 66%). The YoY deterioration were largely due to a longer and tighter lockdown in place in 9MFY21 vs. 9MFY20. There is also a temporary erosion of commercial rentals from the adoption of a new rental model in Malaysia, with extended relief package offered to the tenants in response to the pandemic situation.

• In terms of cost, MAHB achieved a further 12% core operational costs savings following the 26% reduction in FY20, via efforts such as containing staff, utility and maintenance costs. 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 has commenced in July 2021.

• The key takeaways from its analyst briefing yesterday are as follows:

1. MAHB has access to RM8.1bil funding comprising: (1) RM1.325bil in ready revolving credit facilities; and (2) RM6.8bil unutilised sukuk facility, of which RM5.0bil is a newly secured Sukuk Wakalah programme. On the ISG front, it has extended its 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 have been rolled out successfully, attracting the participation from highly sought-after brands and reputable companies, stimulating high capex investment by tenants of up to RM314.5mil, as well as retaining existing tenants. To date, it has approximately onboarded 50% tenants with its commercial reset programme, and another 49 new shops and brands expected to come in. It is in the midst of unlocking an additional 20% (or 14,355 sqm on top of the existing 57,252 sqm) of commercial space in KLIA. At present, the occupancy rate stands at 67% (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. MAHB has put in place multiple initiatives to reconnect the air traffic at its airport as the pandemic has largely move into endemic phase. Some of the initiatives include the network reconnecting programme, which has seen 36 airlines resumed operations in Malaysia, and another 27 airlines expected to resume by the end of this year. It is also pursuing 22 new city pairs under the airline incentives programme as an effort to expand the air traffic network coverage for its airports. MAHB is also expected to be able to benefit from the joint programme with Tourism Malaysia on the International Tourism Development programme, which has seen RM8mil being allocated under the initiative.
4. MAHB has obtained the government’s approval on the new operating agreement’s (OA) principal terms for its 39 airports in Malaysia, while it is at the final stage of negotiation with the government on the terms for Development Agreement and Land Lease Agreement (DA-LLA) for KLIA Aeropolis, with a target to obtain the Cabinet’s approval by end of this year. Meanwhile, MAHB said MAVCOM is conducting an economic study on the passenger service charges, and expects to conclude the first review by 2Q2022, before it can finalise the new OA.

• 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.
• However, as the company’s share price has recovered strongly from its trough during the pandemic, approaching our FV of RM6.57, we believe the upside is limited. Thus, we maintain our HOLD recommendation.

Source: AmInvest Research - 30 Nov 2021