■ 1H23 core net profit of RM225m made up 37% of our full-year forecast; we consider this to be in line as we believe 2H23F traffic will recover further.

■ We reiterate Hold on valuation grounds, with a DCF-based TP of RM7.19, reduced slightly on various offsetting adjustments.

MARCS recognition boosted 2Q23 core net profit

2Q23 core net profit of RM132m was 42% higher qoq, driven by an 8% qoq rise in Malaysia (MY) pax traffic, a 13% increase in Istanbul Sabiha Gokcen (ISG) pax traffic, higher dutyfree sales at MY and ISG, higher commercial rental collection at MY (because more shuttered shops at KLIA1 and KLIA2 are reopening) and because, with respect to the MARCS compensation that MAHB was entitled to recognise in FY22, 60% of that was only recognised in 2Q23 after securing government approval to waive the conditions that would have otherwise prevented MAHB from being entitled to the full MARCS. Opex increased qoq in MY due to higher staff bonus provisions, higher utilities costs and higher maintenance expenditure but revenues increased faster, helping MY to deliver higher EBITDA qoq. At ISG, 2Q23 opex actually decreased qoq due to lower utilities rates in Turkey and the absence of the €5m one-off earthquake donation that was charged into the 1Q23 P&L. On a yoy basis, MAHB reported core net profits in 2Q23 and 1H23, against core net losses in 2Q22 and 1H22. 

2H23F to be boosted by traffic growth and rental restoration

The outlook for 2H23F is bright and, in this report, we raise our MY and ISG pax traffic forecasts for both FY23F and FY24F (Figures 7-20), referencing recent pax traffic trends and after looking at forward airline seat capacity schedules. Airline seat capacity between China and Malaysia in mid-2023 was only 47% of the equivalent level in 2019 but rose to 56% in late-Aug 2023 and could rise further to 73% by late-Dec 2023. We believe Chinese tourist arrivals are the big remaining piece of the puzzle for MAHB and their return could augur well for PSC and duty-free revenues in MY, even if they may spend less than before on a per-pax basis. Separately, we noticed during our walkabout at KLIA1 last month that many shops remain shuttered; MAHB confirmed that, across all its airports in MY, 85% of the commercial lots were tenanted at end-Jun 2023 but only 64% are actually operating and, hence, out of goodwill, MAHB is not collecting rentals on 21% of these technically tenanted lots. This is a huge loss of revenue for MAHB but the good news is that MAHB expects all of these shops to be open by the end of this year.

Let’s see what tariff hikes MAVCOM will soon propose

We reiterate Hold because, in our best estimate, we have already factored in the above earnings drivers into our SOP-based target price of RM7.19 for MAHB. Upside surprises include a higher-than-expected aeronautical tariff hike for FY24F; MAVCOM is currently working to release its third consultation paper by next month. Downside risks include higher-than-expected opex as well as a slower-than-expected pick-up in travel in FY24F and beyond due to airline capacity constraints.

Source: CGS-CIMB Research - 25 Aug 2023