MAHB continued to record improvement in 1QFY22 with lower core loss -RM144.7m (vs -RM184.2m in 4QFY21; -RM251.1m in 1QFY21), in line with our expectation (above consensus). We expect continued traffic improvement in Malaysia and ISGA, as borders reopen and airlines reinstate flight capacity. MAHB will benefit from higher passenger traffic and improved margins. Maintain BUY with adjusted higher TP: RM8.18 (from RM8.05).

Within expectation. MAHB continued to record narrower core LATMI at -RM144.7m for 1QFY22 (vs -RM184.2m in 4QFY21; -RM251.1m in 1QFY21). We deem the result within our full year forecast of LATMI -RM18m, but above consensus’ LATMI -RM109.5m. We expect continued improvements in subsequent quarters, which may potentially result it breaking even for the year. EIs of +RM25m for 1QFY22, mainly on write-back of receivables, fair value gains, forex gains and deferred tax gain from ISGA.

Dividend. None.

QoQ. The recorded core LATMI -RM144.7m in 1QFY22, improved QoQ (-RM184.2m in 4QFY21), driven by traffic improvements in Malaysia operation, lower D&A costs for ISGA, turnaround of associate contributions and lower effective group tax for the quarter.

YoY. Core LATMI of -RM144.7m in 1QFY22, improved YoY from -RM251.1m in 1QFY21, mainly driven by higher passenger movement traffic as both Malaysia and Turkey (ISGA) implemented less restrictive travel requirements.

Malaysia. The continued relaxation of travel restrictions effective 1 April in Malaysia as well as opening up of international borders by many other countries, have provided hope for a recovery in air travel demand in 2022. Management guided there is strong propensity to travel post border reopening. Based on planned airline capacity, domestic capacity has already reached 90% of pre-pandemic level, while international capacity has hit 60%. Management will continue to focus on improving non-airport revenue – retail, commercial and hotels – which will encourage higher average spending as travel resumes in FY22. With the improved cost structure and product offerings, management is expecting stronger recovery in profitability.

ISGA. ISGA continues to show strong passenger movement despite a seasonally weak 1QFY22. Management guided ISGA has already achieved profits, if we exclude the consolidated amortization charges. Management is confident of the earnings outlook of ISGA with the commencement of the new metro connectivity to the airport and the completion of second runway by end 2022/early 2023. The negative impact from the Russia-Ukraine crisis may be overplayed, as Pegasus airline has already reinstated its connectivity to Russia. There is also strong air travel demand from Asia, Middle East and Western Europe into Turkey, which may offset any shortfall from Russia-Ukraine traffic (c.10% of total traffic).

Forecast. After updating our numbers (post annual report), we adjusted FY22 loss to -RM14.8m (from -RM17.8m) and FY23 profit to RM601.9m (from RM596.5m). We also introduce FY24 profit at RM746.8m.

Maintain BUY, TP: RM8.18. We maintain BUY recommendation with a higher TP: RM8.18 (from RM8.05). Countries are opening up their borders while airlines are reinstating their capacities back to pre-pandemic levels. MAHB is a major beneficiary from the anticipated strong air travel recovery, coupled with gains from the lowered cost structure and commercial reset program implemented during the pandemic.

Source: Hong Leong Investment Bank Research - 31 May 2022