Continued core loss in 2QFY21 at -RM261.6m, which dragged 1HFY21 to -RM504.9m, above HLIB’s expectation (42.7%) but below consensus (62.0%). Both Malaysia and Turkey operations remain in the red during the quarter. Nevertheless, the recent relaxation of lockdown measures in Malaysia and the strong recovery of ISG have provided some hopes of air travel recovery as countries start to adapt to living with the virus. Upgrade to HOLD (from Sell) with higher adjusted TP: RM6.00 (from RM4.88), as we raise our forecasts.

Above expectation. MAHB recorded core LATMI of -RM261.6m for 2QFY21, which further dragged 1HFY21 to -RM504.9m. We deem the result above our expectation (42.7%), but below consensus (62.0%). Despite the recent relaxation of movement controls in Malaysia, we still expect continued losses for 2HFY21 as we foresee recovery of domestic air travel only in 1QFY22 and gradual recovery of international travel in 2HFY22.

QoQ/YoY. Due to continued dismal air passenger traffic demand during on-going nationwide lockdown measures and border closure, MAHB continued to record core LATMI at -RM261.6m in 2QFY21 (vs. -RM243.4m in 1QFY21 and -RM300.3m in 2QFY20), as operating revenue was not able to cover operating costs, depreciation & amortization costs and finance costs.

YTD. Recorded LATMI of -RM504.9m, a deterioration from -RM274.3m in 1HFY20, as air passenger traffic was relatively healthy during earlier part of FY20 prior to various lockdown measures and border closure implementation by end 1QFY20.

FiT plan. Management remains committed to the new 5 year strategy and transformation plan “Future F.I.T”, focusing on building capacity and capabilities today to capture opportunities post pandemic. Phase 1 of the plan (2021-2022) is aimed at MAHB’s survival (mainly on liquidity management) and recovery; and Phase 2 (2023- 2025) is aimed at growth and transformation.

Outlook. The recent gradual relaxation and acceleration of vaccination measures in Malaysia has provided hope to a recovery of air travel demand towards 1HFY22. Meanwhile, ISG has shown a strong passenger movement recovery with domestic segment registering a new record high of 1m passengers and international segment recovered up to 70% of pre-pandemic level in Jul 2021.

Concerns. Nevertheless, there is still risk of the pandemic turning more serious with more infectious and deadly variants, as well as disparity of vaccination rates and control measures between the various countries. On local front, the continued push for new Kulim International Airport by Kedah government may post threats to the monopoly of MAHB on the airports operation in Malaysia, while the finalisation of new Operating Agreement has yet again been delayed with no concrete date.

Forecast. We cut the expected losses for FY21 by 12.2% and FY22 by 89.0%, and increased FY23 earnings by 1,211.1% (low base effect), as we imputed an earlier and faster recovery assumptions for air travel.

Upgrade to HOLD, TP: RM6.00. We upgrade our recommendation to HOLD (from Sell) with higher adjusted TP: RM6.00 (from RM4.88) as we now believe the worst should be over and there is lower risk of continuous air travel demand downside from now, as countries are starting measures to adapt to living with the virus.

Source: Hong Leong Investment Bank Research - 24 Aug 2021