Malaysia Airports (MAHB) reported a weak set of results – 1Q20 revenue drop by 25% yoy, in line with lower passenger growth (-28% yoy) and lower retail sales (-41% yoy) at MAHB’s airports due to the Covid-19 outbreak and travel restrictions. As a result, the group incurred a core net loss of RM21m in 1Q20 (vs. RM149m core net profit in 1Q19). The results were below our and consensus expectations. We expect losses to widen in 2Q20 on the back of prolonged travel restrictions and the Movement Control Order (MCO) period. We forecast a core net loss of RM316m for 2020, while we cut our 2021-22E core net profits by 4-12%. We roll forward our valuation basis to 2021 and lower our TP to RM3.75 (from RM4.00). Maintain SELL.

Core Net Loss of RM21m in 1Q20

MAHB’s 1Q20 revenue fell 25% yoy to RM934m on lower revenue contribution from both Malaysia (-29.9% yoy) and Turkey operations (-10% yoy) mainly due to the Covid-19 outbreak. Passenger movement was lower at both MAHB’s airports in Malaysia (-27.6% yoy) and Turkey (-12.5% yoy). MAHB’s EBITDA margin slipped by 10.9ppts to 31.7%, This was due to lower revenue and higher doubtful debt provision of RM88.9m (+263% yoy) related to a dispute with a specific airline, which was partially offset by lower user fees and share of passenger service charges (in-line with lower passenger movement), lower direct material costs (-39.3% yoy) and lower staff, utilities and maintenance costs (-4% yoy). As a result, the group reported a core net loss of RM21.2m in 1Q20 compared to a core net profit of RM149m in 1Q19. Overall, the results were below street and our expectations due to lower than expected passenger movement and high provision for doubtful debts.

Expect net loss of RM316m for 2020E, cut 2021-22E core profits by 4-12%

We expect losses to widen in 2Q20 on the back of lower passenger movement and lower retail sales at MAHB’s Malaysia airport as the travel restriction and MCO period is longer in 2Q. We expect a core net loss of RM316.4m in 2020, and we cut our 2021-22E core net profits by 4-12% mainly to account for (i) lower passenger movement both in Malaysia and Turkey operations; (ii) lower retail sales and rental income at MAHB’s airport; (iii) lower staff, maintenance and utilities costs, driven by MAHB’s cost savings initiatives; and (iv) lower depreciation and amortization costs, in line with lower passenger volume.

Source: Affin Hwang Research - 27 May 2020