Covid-19 has affected air travel demand in Asia (particularly China and South East Asia sectors), as governments have been trying to contain the virus outbreak by locking down cities, quarantining people, issuing travel advisories and controlling their border movements. MAHB will be affected from the weakened passenger traffic in terms of passenger tariff income, aircraft landing & parking charges and lower retail income. We believe the impact from Covid-19 would be more severe and have longer effect as compared to SARS 2003. We have cut our assumptions for passenger growth in 2020 to -3.0% YoY (from +3.5% YoY), but increased 2021 to +7.0% YoY (from +3.5% YoY) on potential rebound from a low base effect. Maintain HOLD on MAHB with lower TP: RM6.75 (from RM7.00) based on 10% discount to a lower DCFE value: RM7.50.

Covid-19 affecting air travel. The recent outbreak of Covid-19 has raised alerts by WHO (World Health Organisation) on the severity of the new virus. China has locked down several cities and provinces in bids to contain the virus while several countries have scrutinized their border movements. MAHB is being affected by a drastic drop in air travel demand (especially for China sector) as governments have imposed various travel bans and restrictions while people are dissuaded from travelling. We understand that airlines have been cancelli ng flights for China sector while suffering low load factor across all other sectors. At the moment, global health experts are still analysing the virus and developing vaccines. We believe any recovery of air travel demand will at earliest, only be realised in 3Q20.

Source: Hong Leong Investment Bank Research - 20 Feb 2020