• Governments in Asia-Pacific are generally cautious about easing travel restrictions.
• Malaysia’s government extended RMCO and tightened border control by banning citizens from countries with a high number of Covid-19 cases.
• The closure of borders may last longer than our prior expectations. We cut our earnings forecasts and lower our TP to RM4.20. Maintain SELL.

In Asia-Pacific, the governments are cautious about easing travel restrictions

Based on a recent research by World Tourism Organization (UNWTO), 115 destinations (53% of all destinations worldwide) have eased travel restrictions. However, many countries remained extremely cautious; 93 destinations (43%) continued to have their borders completely closed to tourism, including Malaysia and a number of Malaysians’ favourite travel destinations.

Meanwhile, Malaysia has tightened its border control

The Malaysian government had on 28th August announced an extension of the RMCO to end-Dec20 and in early September, announced a ban on citizens from countries with a high number of Covid-19 cases from entering Malaysia. Separately, it was reported that the country’s travel bubble plans have been put on hold. In view of these developments, we believe that restrictions on cross-border tourism may last longer than our earlier expectations and negatively affect MAHB’s earnings.

Jul-Aug operating statistics for Malaysian operation were very weak

In July and August 2020, MAHB only registered 84k-91k international passenger movements for its Malaysia operations, a staggering decline of 98% yoy. While the domestic passenger movements fared relatively better during the period, the decline of 71-73% yoy was nevertheless very steep. Moving into 4Q20-1Q21, we expect passenger movements, especially for the international segment, to remain depressed due to travel restrictions and travellers’ cautious sentiment.

Cutting 2020-22E EPS forecasts maintain SELL with a lower TP of RM4.20

Taking into consideration the tightened border control, government’s cautious stance on Covid-19, extension of RMCO and weak operating statistics, we have lowered our passenger movement projections and cut our earnings forecasts for 2020-22E. In tandem, we have lowered our SOTP-derived price target to RM4.20 (from RM4.65). We maintain our SELL rating given its very challenging business outlook.

Source: Affin Hwang Research - 23 Sept 2020