• 9M23 core net profit of RM379m was below expectations at 59% of our fullyear forecast, due to slower-than-expected traffic recovery in Aug-Oct 2023.

• MAHB also made a RM25m doubtful debts provision against MYAirline, whose flying licence was recently suspended.

• Stay Add with higher end-CY24F SOP-based TP of RM8.05; next year’s tariff hikes, a new OA, and the end of rental discounts are key rerating catalysts.

One-off Impact in 3Q23 From MYAirline Suspension

3Q23 core net profit of RM154m was 16% higher qoq, due to the Turkish summer travel peak season, and deferred tax income accruals at ISG that pushed up ISG core net profit by 69% qoq. However, the Malaysia (MY) business saw its core net profit fall 43% qoq, due to 1) a one-off RM24.7m provision for doubtful debts against amounts due from suspended carrier MYAirline, and 2) a 2% qoq fall in MY’s 3Q23 revenue despite an 8% qoq rise in pax traffic. The fall in MY’s quarterly revenue was because the 2Q23 had benefitted from prior period revenues; for instance, more than RM50m of MARCS revenues that originated from 2022 was booked into 2Q23, and a portion of the catch -up in rental revenues from airport tenants was booked in 2Q23 rather than in 1Q23. Stripping these out, MY’s 3Q23 revenues would not have declined.

Many Developments in Dec 2023F; FY24F Outlook Bright

We cut our FY23F core net profit forecast by 18% as we factor in higher ISG opex, but mainly because we reduce our MY pax traffic assumptions for 2023F by 3.6% to 82.5m, on the back of a slower-than-expected recovery in the months of Aug, Sep and Oct 2023. Some airlines in Malaysia have fallen behind their stated aircraft reactivation targets due to extensive repairs required, in our view. Nevertheless, the outlook for 4Q23F and FY24F is good because of the impending 30-day visa-free regime for Chinese and Indian visitors to MY from next month, and China allowing Malaysian inbound visitors 15 visa-free days between 1 Dec 2023F and 30 Nov 2024F. Also, as more airport shops reopen, the value of rentals forgone will narrow, and MAHB will also terminate its rental discount programme next year. On the regulatory side, the 1) impending signing of the new OA in Dec 2023F could excite the market, as investors have not yet factored in any potential improvement in the operating terms into MAHB’s valuation and 2) we also anticipate the release of the new MAVCOM tariff proposals sometime next month that may be effected next year.

Downside Risks Manageable, in Our View

Downside risks include a potential delay in the commencement of MAVCOM’s proposed aeronautical tariff increases, although we think that it may still be implemented before mid - 2024F. We have pencilled in a 1 Jan 2024F start date, but even a one-year delay may only require a 2% cut in our FY24F core net profit estimate, which is not material, in our view. A slower-than-expected pick-up in tourist arrivals from China due to its economic slowdown is another downside risk, but we expect MY to benefit from safety concerns in Thailand.

Source: CGS-CIMB Research - 30 Nov 2023