• A potential MYAirline collapse could result in a bad debt write-off of c.3% of group EPS this year and leave MAHB without 9% of domestic seats.

• Mitigating factors: MYAirline has so far been primarily a domestic airline, and competitors may grow into what it may leave behind at MAHB’s airports.

• Reiterate Add with an unchanged end-CY24F SOP-based TP of RM7.76; we expect the MYAirline issue to be a relatively minor speedbump for MAHB.

MYAirline Shutdown Not Overly Damaging to MAHB, If It Happens

The New Straits Times (NST) reported yesterday that MYAirline had not been paying its staff salaries and its suppliers on time, suggesting financial distress, in our view. MYAirline is a low-cost carrier flying out of KLIA2. The airline is 98% owned by a certain Dato' Goh Hwan Hua, and 2% by its ex-CEO Rayner Teo Kheng Hock, who apparently resigned last week, according to the NST. MYAirline’s CFO and chief commercial officer had also resigned. MYAirline was founded in early-2021 and operated its first flight in Dec 2022, using an all-leased A320 narrowbody fleet. It currently has nine 180-seater A320 aircraft, with 80% of its seat capacity deployed on domestic routes from KLIA2 (Kota Kinabalu, Kuching, Tawau, Sibu, Miri, Kota Bahru, Langkawi and Penang) and 20% to Bangkok Suvarnabhumi and Bangkok Don Mueang. Since 21 Aug 2023, MYAirline has cut its domestic seat capacity by 25%, having terminated Sibu and Miri, and cutting back capacity to Kota Bahru. After mid-Oct 2023, KLIA2 to Bangkok Suvarnabhumi will be terminated, while Bangkok Don Mueang flights will be halved. The Sun reported in Apr 2023 that MYAirline targeted to have at least 20 planes by 2023F, 50 by 2025F, and 80 by 2027F; these ambitions now look out of reach, in our opinion. Because MYAirline is primarily domestic in nature and had only 9% market share of domestic Malaysia seat capacity at its peak in Aug 2023, the impact to MAHB from a potential collapse of the airline will not be overly damaging, in our view. Our estimates indicate that a bad debt write-off of MYAirline’s dues to MAHB could impact our FY23F group core net profit by c.3% (or c.6% of MAHB’s Malaysia-only core net profit); we expect MAHB to make the necessary writeoff in its 3Q23F or 4Q23F results announcement, if it has not already done so. We have not reflected any bad debt write-offs into our financial forecasts for now.

Tariff Hike Could be Delayed, But Pax and Commercial to be Strong

In other downside risks, investors should also be prepared for MAVCOM’s proposed aeronautical tariff increase from 1 Jan 2024F to be delayed, as the regulator has not issued its final proposals, which also needs to be gazetted in Parliament. In Mar 2023, MAVCOM had proposed a 6.89% rise in tariffs effective next year. We remain positive on MAHB, with re-rating catalysts including the upward trajectory of international traffic, while commercial rentals and revenues should also recover sharply as MAHB terminates rental discounts from 1 Jan 2024F and more airport shops reopen. Finally, the new operating agreement (OA) should at least improve the terms in the current OA; MAHB hopes the new OA will be Signed by End-2023F. See Our 13 Sep 2023 Report for More Details.

Source: CGS-CIMB Research - 10 Oct 2023