Investment Highlights

• We maintain HOLD on Malaysia Airports Holdings (MAHB) with an unchanged fair value (FV) of RM7.45/share, pegged to FY23F PE of 25x. Our target PE is based on 1 standard deviation above its 2-year FY18–FY19 pre-pandemic average of 22x, underpinned by a rebound in passenger traffic and positive long-term outlook from multiple growth strategies.

• 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.

• MAHB’s FY22 core net loss (CNL) of RM222mil (stripping off RM458mil one-off reduction in utilisation fee liability, RM20mil net forex losses and net impairments/writeoffs amounted to RM29mil) underperformed, coming in substantively higher than our earlier loss forecast by 54% and street’s by 49%. We keep our forecasts unchanged and introduce FY25F earnings with a smallish growth of 5%, premised on our anticipation of an imminent improvement in the passenger traffic coupled with a leaner cost structure.

• Despite the loss-making bottomline, the group unexpectedly declared an interim dividend of 3.9 sen, which marks its first dividend since the Covid outbreak.

• YoY, MAHB’s FY22 CNL decreased by 70% due to an 87% surge in revenue to RM3.1bil on the back of higher passenger volume amid a recovery in global air travel demand. The lower losses was also partially due to the group’s effective cost management initiatives, as witnessed by the commendable 35%-point improvement in EBIT margin.

• QoQ, 4QFY22 revenue rose by 16% to RM1bil driven by higher passenger traffic. Despite the higher revenue, MAHB recorded a 4QFY22 CNL of RM41mil (vs a RM8mil net profit in 3QFY22), attributable to lower margins and a positive tax charge. The weaker quarterly profit margins was mainly attributable to the higher core cost per passenger, up 18% QoQ to RM18.7/pax (compared to RM15.8/pax in 3QFY22), which led to a drastic 15%-point decline in the EBIT margin to 5%.

• The group also recorded a one-off reduction in utilisation fee liability for its operations in Istanbul Sabiha Gokcen International Airport (SGIA) as a result of an agreement pertaining to force majeure relief granted by the Presidency of Defence Industries of Türkiye back in December 2022. We understand that the relief effectively reduced payable utilisation fees for 2020 and 2021 by EUR117mil, and subsequently resulted in a RM536mil decrease in finance cost.

• We expect MAHB to return to profitability in FY23F, supported by higher passenger volumes and lower operating expenses. We also maintain Malaysian traffic projections of 82.1 mil passengers for FY23F (78% of 2019 level) and 107.4mil for FY24F (102% of 2019 level), underpinned by a robust recovery in global air travel demand in the aftermath of demand disruptions induced by the pandemic.

• The group’s airports in Malaysia also registered impressive performance in January 2023, with passenger movements growing by 2.3x to 6.3mil compared to January 2022. This also represents a 75% recovery to January 2019 traffic. Meanwhile, ISGA also recorded 2.8mil passenger movements in January 2023, translating to a 39.2% YoY increase vs. January 2022 or 1.2% growth vs. January 2019.

• 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. The stock currently trades at a compelling FY23F PE of 24x vs. the peak of 27x in its 2-year (FY18–FY19) pre-pandemic period.

Source: AmInvest Research - 1 Mar 2023