2QFY20 core LATMI at –RM282.0m and 1HFY20 at –RM253.9m, were within HLIB’s expectation of LATMI –RM465.0m for FY20. The aviation sector has been severely affected by Covid-19 with countries implementing lock-down measures. Nevertheless, domestic travel has resumed in Malaysia (since May) and Turkey (since Jun) while international travel is still restricted for the time being. Management has been working hard in cutting cash costs and securing credit lines to ensure enough liquidity to survive through this pandemic. We maintain SELL recommendation, based on DCFE TP: RM4.35, as we expect aviation market to remain challenging.

Within expectation. MAHB recorded core LATMI of -RM282.0m for 2QFY20 and –RM253.9m in 1HFY20 vs. HLIB’s full year forecast of LATMI –RM464.8m and consensus of –RM272.0m. We deem the result within our expectation (below consensus) as we expect continued losses in 2HFY20, due to on-going lockdown measures and limited allowable international travel. In 1HFY20, we have excluded EIs of –RM57m doubtful debt provision, RM17.1m fair value gain (on unit trusts and investment in Hyderabad airport) and RM138m write-back of tax expenses.

Dividend. None.

QoQ & YoY. Recorded LATMI –RM282.0m in 2QFY20 (vs. PATMI RM28.1m in 1QFY20 and RM116.0m in 2QFY19) and LATMI –RM253.9m in 1HFY20 (vs. PATMI RM264.7m in 1HFY19), mainly due to the steep drop in passenger traffic in MAHB (-95.6% QoQ; -96.9% YoY; -62.4% YTD) and ISGA (-97.8% QoQ; -94.0% YoY; -54.7% YTD) affected by Covid-19 and county lock-down measures.

Covid-19. The outbreak of Covid-19 has severally affected global travel, impacting the overall aviation sector, including both MAHB and ISGA in 1HFY20. Nevertheless, Malaysia has allowed for resumption of domestic travel in May while Turkey allowed domestic travel in Jun. International travel is still restricted at this juncture as governments continue to assess the viability with concerns on Covid-19 spread. While airlines targeted to commence operation in 4QFY20, we believe situation remains very fluid at this juncture. However, MAHB will remain in the red without recovery of international travel, which fetches higher tariff and spending in the airports.

Measures. Management remains committed to ensure cash liquidity to survive through this difficult period. Several measures in reducing costs (targeting 20% cut vs. 2019), deferring capex spending, engaging government for dated receivables, securing RM1.7bn bank line and divesting Hyderabad airport (valued at RM440- 520m). Management indicated no cash-flow issue with the RM1bn sukuk repayment in Aug 2020 for MAHB, while ISGA is approaching the government for a restructuring of its user fee commitment of EUR114.8m due in Jan 2021 as well as restructuring its EUR385m debt with bankers.

OA. Management is expecting to finalise the OA with government by year end. The OA will ensure long term sustainable airport development with suitable funding model while ensuring sustainable earnings and return to MAHB. We believe RAB is likely to be put on hold for now, as it is deem unsuitable under the current environment.

Forecast. Unchanged.

Maintain SELL, TP: RM4.35. We maintain SELL recommendation on MAHB with unchanged TP: RM4.35 based on DCFE. MAHB is expected to remain in the red in the near term with depleting cash flow. Nevertheless, management has secured enough liquidity until 2021-2022.

Source: Hong Leong Investment Bank Research - 28 Aug 2020