Continued core loss in 4QFY20 at -RM289.9m, further dragged FY20 to -RM829.7m, which was within HLIB’s expectation (101.7%) but below consensus (125.3%). FY20 was mainly affected by Covid-19 and restricted movements in Malaysia and Turkey. Despite the starting of vaccination program, we expect continued losses in FY21, before recovery into FY22. Nevertheless, we do not expect liquidity issue s with MAHB as the group still has RM1.7bn cash in hand with RM2.9bn undrawn credit (as compared to RM1.2bn net cash depletion in FY20) with major ISG concession cash expense of EUR114.8m (RM560m) being deferred. Upgrade to HOLD (from Sell) with higher TP: RM5.40 (from RM4.65) as we adjusted our forecasts and change valuation method to SOP (from DCFE).

Within expectation. MAHB recorded core LATMI of -RM289.9m for 4QFY20, further dragged FY20 to -RM829.7m, which was within HLIB’s forecast (101.7%), but below consensus (125.3%). In FY20, we have excluded EIs of -RM80m on doubtful debts, -RM400m net impact of impairments on ISGA investments (4QFY20), -RM127m accelerated amortization, -RM140m of rebates for commercial rental, +RM158m write back of tax expenses (2QFY20) and +RM247m deferred tax credit on ITA related to KLIA2 development capex (4QFY20).

QoQ. Core LATMI deteriorated further by 9.1% to -RM289.9m mainly dragged by lower passenger traffic in Malaysia operation following the heightened restrictions between Peninsular and Sabah/Sarawak as the later recorded increasing new positive cases of Covid-19, while ISGA recorded lower core losses.

YoY & YTD. Recorded LATMI -RM289.9m in 4QFY20 (vs. PATMI RM77.6m in 4QFY20) and -RM829.7m in FY20 (vs. PATMI RM504.4m in FY19), mainly due to the steep drop in passenger traffic in MAHB (-92.5% YoY; -75.5% YTD) and ISGA (-48.2%; -62.4% YTD) affected by Covid-19 and country lock-down measures.

OA. The new OA signing has now been delayed further to 2QFY21, likely due to implementation of MCO2.0 during early of 2021. The new OA, which will ensure long term sustainability of the nation’s airports development, is expected to be positive to MAHB as well as to the nation’s development in balancing social agenda and impact.

Liquidity. Despite lowered RM1.2bn net cash in FY20, the group’s liquidity remains intact as MAHB still has RM1.7bn in hand with available RM1.8bn undrawn sukuk and RM1.1bn revolving credit. Management managed to secure deferment for ISG concession payment of EUR114.8m (RM560m) due in Jan 2021 (to a later date to be determined) and EUR 10m (RM49m) for ISG debt payment till end 2021.

Outlook. The starting of the national vaccination program has certainly provided a hope to the industry. However, we do not expect the recovery of air travel (especially for international cross border) until end of 2021 or early 2022, until national vaccination reaches 70-80% level (as noted by Health Director-General Tan Sri Dr Noor Hisham). Hence, we expect MAHB to remain in the red in 1Q-3QFY21 before a potential recovery in 4QFY21-2022.

Forecast. Widen losses for FY21 by 51.8% on slower recovery in 1HFY21, but increased earnings for FY22 by 14.0% to account for normalization of air travel.

Upgrade to HOLD, TP: RM5.40. We upgrade our recommendation to HOLD (from Sell) on MAHB with higher TP: RM5.40 (from RM4.65) based on SOP (from DCFE) as the vaccine rollout provides some light at the end of the tunnel. MAHB is expected to remain in the red in the near term, affecting cash flow. Nevertheless, management has secured enough liquidity until 2021-2022.

Source: Hong Leong Investment Bank Research - 1 Mar 2021