Reported 4QFY19 core PATMI at RM77.6m (-52.1% QoQ; +15.3% YoY) and FY19 at RM504.4m (+30.9% YoY), below HLIB’s expectation (77.2%) and consensus (86.2%), due to higher than expected opex (mainly staff costs and utilities charges). The recent outbreak of Covid-19 will have negative impact towards Malaysia and ISGA operations. Maintain HOLD on MAHB with unchanged TP: RM6.75 based on 10% discount to DCFE value: RM7.50.

Below expectation. Reported core PATMI of RM77.6m (-52.1% QoQ; +15.3% YoY) for 4QFY19 and RM504.4m (+30.9%) for FY19, missing HLIB’s expectation (77.2%) and consensus (86.2%), mainly attributed to higher than expected opex (related to staff costs and utilities charges), coupled with higher interest expenses and user fees. During 4QFY19, we have excluded EIs of RM28m for penalties and improvements of systems due to the technical glitch and RM35.7m for the discounted repayment of SIC circuit repayment by government.

Dividend. Declared a final dividend of 10 sen/share (ex-date to be determined at a later date); this increased full year dividend to 15 sen/share (2.3% yield).

QoQ. Core PATMI dropped 52.1%, dragged by (i) higher opex (mainly staff costs) for Malaysia operation in 4QFY19 and (ii) seasonal weak ISGA operation, resulting consolidated loss in 4QFY19 (vs. profits in 3QFY19).

YoY/YTD. In line with stronger revenue, core PATMI improved by 15.3% YoY and 30.9% YTD, mainly driven by the improvements in ISGA operation on strong international traffic growth while Malaysia operation remained relatively stagnant given deteriorated passenger mix with on-going commercial reset activity during the year as well as higher operational costs.

Covid-19. The outbreak of Covid-19 has affected Asia travel demand, which management indicated overall 30% cut in airline capacity in the near term for Malaysia operation. Management is engaging the government for more details of the recently announced stimulus plan with regards to duration, effective date, percentage rebates, total budgets etc. Assuming (i) 50% discount to aircraft landing and parking charges for 1 year; and (ii) 50% discount to retail rentals for 7 months (both similar to SARS 2003), we estimate a total cost of RM280m. At this juncture, there is still no clarity if MAHB or government (or perhaps a sharing mechanism) is going to bear the estimated costs.

RAB. Continued uncertainty on the effective implementation of RAB while new structure of the OA has not been firmed yet. The recent government move to merge CAAM and MAVCOM, outbreak of Covid-19 and political uncertainties may continue to affect RAB’s implementation.

ISGA turnaround. ISGA continued to show strong earnings momentum with profit for FY19, driven by the increase in international traffic and the implementation of EUR3 PSSC. The recent terminal capacity expansion to 41mppa and upcoming complete construction of runway 2 will further enhance ISGA’s traffic flow. Nevertheless, the outbreak of Covid-19 in Europe and Middle East may affect its traffic in the near term.

Forecast. Unchanged. We have cut our forecasts in the previous report (20 Feb).

Maintain HOLD, TP: RM6.75. We maintain HOLD recommendation on MAHB with unchanged TP: RM6.75 (10% discount to DCFE value: RM7.50). MAHB is expected to face weak passenger traffic at least in the near term due to Covid-19 on top of the current market concerns on the on-going regulatory development.

Source: Hong Leong Investment Bank Research - 9 Mar 2020