3QFY20 core LATMI at -RM278.9m and 9MFY20 at -RM532.9m, were below HLIB’s expectation of LATMI -RM548.9m and consensus -RM455.2m for FY20, mainly affected by Covid-19 and restricted movements. We expect worsening 4QFY20 results, before recovery into 2HFY21 (assuming relaxation of air travel due to better control of Covid-19 and rollout of vaccination programs). Liquidity management has been bearing fruits with on-going cash costs cutting measures, recouping receivables, restructuring of debts and securing credit lines/sukuk program. We maintain SELL recommendation, based on DCFE TP of RM4.15, as we expect aviation market to remain challenging until 2021.

Below expectation. MAHB recorded core LATMI of -RM278.9m for 3QFY20, further dragging 9MFY20 to -RM532.9m in 9MFY20 vs. HLIB’s full year forecast of LATMI -RM548.9m and consensus of -RM455.2m. We deem the results below expectations as we expect continued losses into 4QFY20, due to on-going lockdown measures and limited allowable international fligths. In 9MFY20, we have excluded EIs of -RM80.6m on doubtful debt provision, RM12.6m on reversal and net fair value gain (on unit trusts and investment in Hyderabad airport) and RM138m write-back of tax expenses.

QoQ. Despite the improvement in traffic and revenue, core LATMI was relatively flattish at -RM278.9m (vs. -RM282.2m in 2QFY20), as the higher EBITDA was mainly offset by the higher depreciation charges QoQ due to combinations of (i) normalised depreciation charges in 3QFY20; and (ii) RM20m accelerated charges.

YoY & YTD. Recorded LATMI -RM278.9m in 3QFY20 (vs. PATMI RM162.1m in 3QFY20) and -RM532.9m in 9MFY20 (vs. PATMI RM426.9m in 9MFY19), mainly due to the steep drop in passenger traffic in MAHB (-83.4% YoY; 69.6% YTD) and ISGA (-50.9%; -53.3% YTD) affected by Covid-19 and country lock-down measures.

OA. Management is targeting to conclude the OA terms with government by Dec 2020/Jan 2021, which will be positive to MAHB as well as to the nation’s development in balancing social agenda and impact. The OA will ensure long term sustainability of the nation’s airport development with suitable range of financing models while ensuring fair returns to MAHB stakeholders, even taking account of current crisis.

Liquidity. Management is keeping up the group’s liquidity requisite with on-going costs cutting measures (20% cut vs. 2019), deferring capex spending, engaging government for dated receivables and securing RM1.7bn bank line (utilized RM300m) and RM2.5bn sukuk program (utilised RM700m). ISGA is negotiating with Turkish government for deferment of the upcoming EUR114.8m user fee (due in Jan 2021) as well as restructuring its EUR385m debt (to secure agreement for deferred payments till end 2021).

Outlook. Despite the positive news flow of vaccine development, we do not expect the recovery of air travel (especially for international cross border) until end of 2021 or early 2022, as the vaccine recovery path to normalcy will be a gradual one with supply related hiccups. Nevertheless we should see some improvement in 2H21, when there is gradual relaxation of international travel.

Forecast. We adjusted losses for FY20 to -RM923.5m (from -RM548.9m) and FY21 to -RM391.7m (from -RM197.0m) while FY22 is relatively unchanged (+0.3%).

Maintain SELL, TP: RM4.15. We maintain SELL recommendation on MAHB with unchanged TP: RM4.15 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 - 1 Dec 2020