Investment Highlights

• We maintain HOLD on Malaysia Airports Holdings (MAHB) with an unchanged fair value (FV) of RM6.80/share, pegged to FY23F PE of 22x at its 2-year FY18–FY19 prepandemic average. Our FV also incorporates a 3% premium to account for an unchanged 4-star ESG rating (Exhibit 6), underpinned by the group’s initiatives to increase the usage of renewable energy.

• Our forecasts are unchanged as we deem MAHB’s 1HFY22 core net loss (CNL) of RM188mil within expectations despite accounting for 90% of our FY22F losses and 148% of street estimates. This is supported by prospects of robust earnings recovery over the coming quarters stemming from a steady upward trajectory in passenger traffic from both its Malaysian and Turkish operations coupled with better cost efficiencies from continuous cost-control initiatives.

• MAHB’s 1HFY22 CNL (excluding RM25mil write-back of impairment on receivables) fell by 60% YoY due to a 91% revenue surge underpinned by higher passenger volume amid a global rebound in air travel.

• On a QoQ basis, 2QFY22 CNL narrowed by 40% to RM71mil due to a 21% growth in revenue. We also note that cost containment measures are slowly bearing fruits, with the group’s core costs per passenger reducing by 20% to RM18.7/pax from RM23.3/pax in 1QFY22.

• Moving forward, we expect smaller QoQ losses for the remainder of FY22, supported by rising passenger volumes. At this recovery rate, we believe that an eventual turnaround in 4QFY22 seems achievable, assuming that passenger volume accelerates alongside the higher world vaccination rate and gradual relaxation of travel restrictions across the world.

• This can be shown by improvements in traffic statistics for July 2022 with YTD total passenger volume jumping 2.8x YoY, which translated to an impressive recovery to 52% of the corresponding period in pre-Covid 2019. Daily international passenger movements across airports in Malaysia also averaged 53K in July 2022, which represented a 35% recovery from the July 2019 level.

• Meanwhile, the operations of Istanbul Sabiha Gokcen International Airport (SGIA) continued to improve with passenger traffic reaching close to 84% of the 2019 level based on July performance. Moreover, passenger traffic could rise further in the coming months, coinciding with the beginning of summer and school holidays in Turkey.

• Our unchanged assumptions include Malaysia’s FY22F passenger traffic rebounding by 5x YoY to 63.2mil from a low base of 10.7mil in FY21, subsequently increasing by 37% YoY to 86.3mil in FY23F (Exhibit 3). This translates to a 60% recovery of 2019 levels for FY22F and 82% for FY23F. As a comparison, the International Air Transport Association (IATA) projected more bullish overall air traveller numbers that could reach 83% of 2019 levels in 2022, 94% in 2023 and 103% in 2024.

• MAHB’s earnings outlook is gradually improving, premised on the recovery in air travel and tourism sectors as the pandemic comes under control with large-scale vaccination rollouts and international borders reopening globally. As the stock currently trades at a fair FY23F PE of 20x – near its 2-year FY18–FY19 pre-pandemic average – we view the upside potential to be capped.

Source: AmInvest Research - 26 Aug 2022