MAHB continued to record improvement in 2QFY22 with lower core loss -RM93.0m (vs -RM141.3m in 1QFY22; -RM258.3m in 2QFY21), with 1HFY22 at -RM234.3m (vs -RM494.0m SPLY). The results were below our expectation (on slower than expected recovery) but 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 a lower adjusted TP: RM7.85 (from RM8.18).

Below expectation. MAHB continued to record narrower core LATMI at -RM93.0m for 2QFY22 (vs -RM141.3m in 1QFY22; -RM258.3m in 2QFY21). 1HFY22 LATMI was -RM234.3m (vs -RM494.0 SPLY). We deem the results below our full year forecast of LATMI -RM14.8m (on slower than expected recovery), but above consensus’ LATMI -RM219.9m. We expect continued improvements in subsequent quarters, which should lower overall losses for the year. EIs of +RM42.9m for 2HFY22, mainly on write back of receivables, fair value gains, forex gains and deferred tax gain from ISGA.

Dividend. None.

QoQ/YoY. Improvement in core LATMI to -RM93.0m in 2QFY22, from -RM141.3m in 1QFY22 and -RM258.3m in 2QFY21, was driven by traffic improvement and better passenger mix in both Malaysia (post international border reopening effective 1 Apr 2022) and ISG operations (see figure #2), which contributed to higher group revenue and EBITDA. These improvements were partially offset by higher depreciation and amortization charges (based on Unit of Production methodology) and finance charges.

YTD. Similarly, 1HFY22 core LATMI improved to -RM234.3m, from -RM494.0m SPLY, driven by combination of: (i) higher passenger movement traffic; (ii) improved international passenger mix (fetch higher tariff and retail spending); and (iii) continued strict control of cost structures.

Malaysia. We expect continued improvements in traffic as Malaysia based airlines introduce new routes and increase frequency in tandem with the growing demand for air travel. Based on planned airline capacity, domestic capacity will continued to improve to 75% of pre-pandemic level (from current 68.4%), while international capacity will improve to >60% (from current 41.4%). Management will also focus on improving non-airport revenue – retail, commercial and hotels – which will encourage higher average spending as travel resumes. With the improved cost structure and product offerings, management is expecting stronger recovery in profitability.

ISGA. ISGA continues to show strong passenger movement with improved international mix. We note that both ISGA and LGM have already achieved combined profits of RM25m, if we exclude the consolidated amortization charges of RM75.8m. Despite the high inflation and deteriorated currency (Lira), ISGA’s outlook remains promising with the earnings denominated in EUR and traffic remained strong from in-bound tourism and abroad working Turks. Management continues to engage Turkey’s government on potential fees rebate and concession extension for the losses during the pandemic.

Forecast. We cut our forecasts to LATMI -RM103m (from -RM15) in FY22, PATMI RM523m (from RM602m) in FY23 and PATMI RM657m (from RM747m) in FY24.

Maintain BUY, TP: RM7.85. Despite the results shortfall, we maintain our BUY recommendation with a lower TP: RM7.85 (from RM8.18), as we are positive on MAHB leveraging onto the recovery of air travel as countries relax their border restrictions while airlines are reinstating their capacities back to pre-pandemic levels.

Source: Hong Leong Investment Bank Research - 26 Aug 2022