Investment Highlights

• Steady recovery of international tourist arrivals. We attended an in-depth presentation delivered by government officials from the Ministry of Tourism, Arts and Culture (MOTAC), Tourism Malaysia and Malaysia Digital Economy Corporation (MDEC), which reaffirms our optimistic view on the impending recovery of Malaysia’s aviation sector. Key takeaways from the presentation are:
   
  • Expect full recovery by 2026. According to MOTAC’s data, the international tourist arrival in 2022 was 10.1mil tourists (Exhibit 2) which represented only 39% of 2019 levels. Moving forward, international tourist arrivals are expected to increase by +59% YoY to 16.1mil in 2023 (62% of 2019 levels), +24% YoY to 19.9mil in 2024 (76% of 2019 levels) and +18% YoY to 23.5mil in 2025 (90% of 2019 levels). The ministry anticipates that the foreign tourist arrival will only achieve full recovery from pre-pandemic levels in 2026.  
     
  • Higher spending per tourist. Relative to tourist statistics, international tourist receipts are projected to accelerate at a faster pace by +74% YoY in 2023 to RM49.2bil from RM28.2bil in 2022, +29% YoY to RM63.7bil in 2024 and +21% YoY to RM76.8bil in 2025. This translates to an average receipt per pax of RM3,056 in 2023, RM3,201 in 2024 and RM3,268 in 2025. We understand that the increase in average international tourist receipt per pax is mainly driven by inflation rates and return of high-spending tourists from long-haul countries such as Europe and the Middle East.  
     
  • Natural attractions. For Visit Malaysia 2025, the ministry places a great emphasis on high-yield nature-based tourism (NBT) segment as one of the most important tourism product offerings. This is premised on the fact that Malaysia has a great variety of natural sites to be developed into ecotourism destinations. MOTAC also explained that the targeted key markets for Malaysian NBT are Australia, Singapore, Japan, and UK which typically have higher spending per pax. The World Bank estimates that the global NBT market, expected to be worth US$825bil currently, is one the fastest-growing segments in the tourism industry.    
     
  • Slower Asia Pacific recovery. Meanwhile, the representative from Tourism Malaysia cited data from The World Tourism Organisation (UNWTO) on the overall international tourist performance by region (Figure 3), which shows that Asia Pacific recorded the weakest recovery in international tourist arrivals to 23% (as compared to 2019 levels) in 2022. This is substantially lower than the 2022 global average recovery rate to 63% compared to 2019 levels. On the contrary, Middle Eastern countries charted the highest recovery rate to 83% compared to 2019 levels, mainly supported by large sport and leisure events such as the 2022 FIFA World Cup in Qatar.  
     
  • China lagging. By nationality, Tourism Malaysia highlighted that Singapore, Indonesia and China were the top 3 countries for inbound tourist arrivals into Malaysia in the pre-pandemic period. However, Thailand has taken up China’s place to become the third largest country in terms of inbound tourist arrivals into Malaysia by nationality in 2022, as China only opened its border in late 2022. Thus, the agency anticipates that international tourists from China will rebound strongly in 2023 and subsequently reach pre-pandemic levels in 2026. The agency also highlighted a number of overseas promotional programs being lined up in 2023 which would help to stimulate inbound travelers into Malaysia.
     
• Steady recovery in passenger movements. Passenger throughput at Malaysian airports is also gradually recovering as shown by the commendable performance achieved by Malaysia Airports Holdings (MAHB). In 4MFY23, MAHB’s airports in Malaysia recorded a total of 25.1mil passengers, representing 73% of 4MFY19 levels. It registered a total of 4.3mil international passengers in 4MFY23, reaching 64% of 4MFY19 levels. Sequentially, we project MAHB’s total passenger traffic to increase by +50% YoY to 79mil passengers in 2023, +27% YoY to 100mil passengers in 2024 and +5% YoY to 105mil passengers in 2025. This translates to a recovery rate against 2019 levels of 75% in 2023, 95% in 2024 and 100% in 2025.

• Upgrade to OVERWEIGHT from NEUTRAL on the sector. We continue to expect a steady recovery in the aviation sector, supported by an imminent recovery in air travel demand, which is widely anticipated to reach pre-pandemic levels by 2025. We prefer airport operator Malaysia Airports (BUY, FV: RM8.04) as a direct proxy to the robust recovery in Malaysia’s air travel demand, which is on track to return to the black in FY23F, supported by higher passenger volumes and a leaner cost structure.
  
  We also like Perak Transit (BUY, FV: RM1.54), which offers a good opportunity for investors to own a defensive public infrastructure business while capitalising on resilient growth from:
  
  (i) steady improvement in occupancy rates and footfalls at Terminal Meru Raya and Kampar Putra Sentral,
  
  (ii) Bidor Sentral’s maiden earnings contribution, which is expected to kick in from 2HFY23 onwards, and
  
  (iii) collaboration with edotco Malaysia to construct telecommunication towers in Perak.

Source: AmInvest Research - 30 Jun 2023