Investment Highlights

• We maintain HOLD on Malaysia Airports Holdings (MAHB) with a slightly higher fair value (FV) of RM7.81/share, pegged to a rolled-forward FY24F PE of 19x which is 1 standard deviation below its 2-year FY18–FY19 pre-pandemic average of 22x. 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.

• We cut FY23F/FY24F earnings by 7%/17% upon lowering passenger traffic assumptions and tweaking profit margins. Nevertheless, our FY25F net profit is maintained on anticipation of a sustainable improvement in MAHB’s passenger traffic on the back of global air travel recovery in the long run.

• Due to slower-than-expected air travel demand, especially from China amid a weaker global economic outlook, we now expect the group’s passenger movement to reach prepandemic levels only in FY25F, instead of our earlier projection in FY24F. Nevertheless, despite a slower trajectory, we foresee the group returning to profitability in FY23F, underpinned by higher passenger movement and a leaner cost structure.

• Thus, our projection for Malaysian traffic projections revised to 78.9mil passengers (79% of 2019 level) from 82.1 mil previously for FY23F and 100mil for FY24F (95% of 2019 level) from 107.4mil previously. Meanwhile, we estimate that the group will achieve passenger recovery of 79% compared to 2019 levels for FY23F, 96% for FY24F and 101% for FY25F.

• The group recorded improved 1QCY23 passenger traffic, up 81% YoY to 26.8mil passengers (inclusive of Istanbul Sabiha Gokcen International Airport), which also represents an impressive 80% recovery compared to 1QCY19. MAHB’s airports in Malaysia also achieved a monthly international passenger movement of 2.9mil in March 2023 which is the highest monthly volume since March 2020, reaching 66% of 2019 levels.

• Separately, the expansion plan for Subang Airport is making headway as the group has recently submitted a detailed business plan for the redevelopment to the Ministry of Transport (MOT). This paves the path for the subsequent tabulation of a Cabinet paper for further approval by the end of 2QCY23.

• Recall that Transport Minister Anthony Loke announced in February 2023 that the Subang Airport Regeneration Plan (SARP) has been approved in-principle by the Cabinet. The plan will see the airport being upgraded into a regional aviation hub and equipped with a capacity of 8 million passengers per annum (mppa) – more than 5x increase from the current capacity of 1.5 mppa.

• In addition, we also reckon that the group has a number of expansion plans in the cards. For instance, the expansion of Penang International Airport from 6.5 mppa to 12 mppa is currently in its planning stage while the Sultan Ismail Petra Airport in Kelantan is also undergoing expansion to increase capacity from 1.5 mppa to 4 mppa.

• MAHB’s earnings outlook remains promising and is on track to return to the black in FY23F 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 fair FY23F PE of 27x, which is the peak of the 2-year (FY18–FY19) pre-pandemic period.

Source: AmInvest Research - 9 May 2023