• Steep 2Q20 pretax loss of RM268m due to a plunge in passenger movement, partly cushioned by lower operating and depreciation costs. Operationally, the 2Q20 pretax loss was steeper than expected.
• Management has made decent progress in its cost containment and cash conservation / recovery initiatives, thereby minimising the risk for a cash call.
• In view of the prolonged border closures and weaker-than-expected recovery in passenger traffic, we cut our 2020-22E earnings and lower our 12-month price target to RM4.65, maintain SELL.

Steep 2Q20 pretax loss of RM268m due to a plunge in passenger movement

MAHB reported a steep 2Q20 pretax loss of RM268m due to lower revenue (-78% yoy to RM272m), partly cushioned by lower operating (-52%) and depreciation costs (-73%). The sharp decline in revenue was due to a plunge in passenger traffic (-96% yoy) which led to sharp decline in aeronautical (-93%) and retail revenue (-98%); revenue from rental & royalties fell by a relatively lower 37%. On the cost front, MAHB has achieved operating cost savings of 17.3% and recognised lower depreciation costs due to the decline in passenger traffic. Lastly, MAHB recognised RM192m of tax credit largely due to the recognition of tax recoverable and deferred tax asset, which helped narrow its 2Q20 net loss.

Operationally, 6M20 Pretax Loss Was Steeper Than Expected

Cumulatively, MAHB’s 6M20 pretax loss of RM304m was steeper than market and our expectations due to the very sharp decline in the passenger traffic (-60% yoy). Nonetheless, MAHB’s 6M20 net loss of RM112m was smaller than the market and our expectations due to the recognition of RM192m of tax credit.

Cost containment and cash conservation / recovery initiatives are going well

MAHB has made notable progress in its cost containment and cash conservation / recovery initiatives: (i) the group achieved a 17% reduction in its 6M20 operational expenses (ie. staff costs, maintenance, utilities); (ii) 6M20 capex remained low at RM39m; (iii) the group recovered RM218m of receivables / taxes from the government in ytd-2020 and is looking to recover additional cash by end-2020; and (iv) MAHB has also secured RM1.4bn in revolving credit facilities with 4 banks and requested to defer the EUR115m utilisation fees due in early 2021. Overall, management does not see the need for a cash call.

Cutting Forecasts and Lowering Price Target to RM4.65

We are cutting our FY20-22E earnings forecasts, now expecting MAHB to report larger core net loss of RM375m in 2020E (from the prior forecast of RM316m net losses) and lower core net profit of RM269 / RM481m in FY21-22E (from RM377 / RM530m). We have incorporated: (i) lower passenger movements for 2020-21E in view of the prolonged border closures, weaker-than-expected travel sentiment and the cautious guidance by IATA (International Air Transport Association); (ii) lower depreciation expenses in tandem with lower passenger movements; (iii) lower operating costs tracking the good progress in execution of the cost savings initiatives; and (iv) the positive tax credit arising from recognition of tax recoverable and deferred tax asset in 2Q20. In tandem, we have lowered our SOTP-derived 12- month price target to RM4.65 (from RM5.10).

Maintain SELL

We maintain our SELL rating on MAHB. While we believe the worst (in terms of passenger movements and operational losses) is now behind us, the operational outlook remains very challenging due to the cautious travel sentiment and prolonged closure of borders. We do not expect a full recovery in passenger movements (to pre-Covid-19 level) within 2021-22. Key risks to our negative view are a stronger-than-expected recovery in revenue, higher-than-expected cost savings and better-than-expected terms under the new operating agreement.

Source: Affin Hwang Research - 28 Aug 2020