• Disappointing results – lower quarterly revenue, higher operating costs and recognition of RM500m impairment resulted in a RM700m net loss in 4Q20
• We now expect MAHB to report wider losses in 2021E due to the reimplementation of MCO and slower-than-expected vaccination schedule
• Downgrade to HOLD. MAHB’s share price has appreciated by 19% mom largely due to optimism on Malaysia’s vaccination plan. We believe market has priced in a recovery in 2022 and the current valuation looks fair

RM700m Net Loss in 4Q20 Due to Impairment on Operating Losses

MAHB reported a weak set of results – 4Q20 net loss deepened to RM700m due to higher operating losses and the recognition of RM500m impairments on Istanbul Sabiha Gokcen (ISG)’s intangible asset. MAHB’s 4Q20 revenue fell by 34% qoq due to a 56% qoq decline in Malaysia revenue, after the reimplementation of CMCO in 4Q20, partly cushioned by a 17% increase in Turkey revenue. The lower revenue and higher operating expenses had led to a higher 4Q20 operating loss of RM460m (3Q20: -RM202m). All in, the group’s 2020 core net loss of RM675m was below market and our expectations. The earnings miss was due to lower-than-expected passenger movements in 4Q20 and slight quarterly uptick in costs.

Earnings Aside, Management Handled the Cash Flow Admirably

Amidst the highly challenging business condition, management has handled its cash flow and cost admirably. The group had reduced its 2020 core operating costs by 26%, recovered RM415m from government related receivables and managed to defer the EUR115m ISG utilisation fees that was initially due in January 2021. MAHB’s 2020 net operating cash outflow was a respectable RM67m, considering the difficult business environment and the huge reported net loss.

Recovery may lag our prior estimate, cutting earnings and downgrade to HOLD

Malaysia has started the vaccinations for its front-liners. The government targets to vaccinate 80% of all adults by end-2021 or February 2022. While we are positive on the government’s vaccination plan, the reimplementation of MCO in January 2021 and a slower-than-expected vaccination schedule will affect MAHB’s 1H21, and likely 3Q21 passenger volume. We have cut our 2021-22E earnings to incorporate in lower passenger movements. Downgrade to HOLD with a lower price target of RM6.50 (from RM6.65). MAHB’s share price had increased by 19% mom on optimism on vaccination and the upside looks limited.

Source: Affin Hwang Research - 1 Mar 2021