Malaysia Airports Holdings Berhad (MAHB)’s 1HFY20 total passenger declined 61% to 26.9m or 25% of our full-year forecast which we consider as in line as we are expecting a much stronger 2HFY20. The new Operating Agreement (OA) with the Government following the extension of the concession (yet to be signed) will pave the way for the stock to be re-rated. We keep our FY20E/FY21E earnings forecasts unchanged for now. Maintain OP with a TP of RM6.30.

YoY, 1HFY20 total passengers hit 25% of our full-year forecast. YoY, MAHB’s network of airports (including Istanbul SGIA) recorded passenger movement receding 61% to 26.9m. Both international and domestic passenger movements declined by 64% and 58%, respectively. Overall aircraft movements declined by 50% over 1HFY19. Airports in Malaysia logged in contraction of 62% in passenger movements. International and domestic sectors recorded 9m and 10m passengers, in line with lower aircraft movements (-49%). KLIA passenger movements declined by 64% due to lower International (-65%) and domestic (-62%) passenger movements which recorded 7.7m and 3.3m passengers, respectively. Overall passenger movements at Istanbul SGIA declined 55%.

Traffic expected to pick up. June traffic movements are indicating re opening phase of air travel for both Malaysia and Istanbul SGIA markets. We expect passenger movements to pick up, driven by airlines resumption of domestic flights in Malaysia which corresponded with the relaxation of interstate travel ban from 10 June 2020. Similarly, in Turkey, domestic flights resumed operation after intercity travelling was allowed from 1 June while international passenger movements were opened in 11 June. With some easing of restriction that allows specific international travellers (such as medical tourists, expatriates, Malaysia My Second Home pass holders, foreign students, permanent residents and foreign spouses of Malaysians) to travel into the country, some growth is expected in the upcoming months. The Government has also identified travel bubbles to six countries with reciprocal arrangements allowing flights and travellers to travel between established routes.

Outlook. We highlight that after 12 Apr 2019, MAHB announced that the Government had approved the extension of MAHB’s concession to operate 39 airports in Malaysia from 2034 to 2069. The new Operating Agreement (OA) with the Government following the extension of the concession (yet to be signed) will pave the way for the stock to be re rated. We believe the new OA will be investor-friendly and create a sustainable long-term development platform of MAHB. AirAsia has resumed its scheduled domestic flights commencing with Malaysia on 29 April 2020, followed by Thailand (1 May 2020), the Philippines (1 June 2020) and India (4 May 2020). The resumption of services will initially be focused on key selected domestic routes, which will increase gradually to include international destinations around the network, once the situation improves and governments lift borders and travel restrictions.

Re-iterate OP. We keep our FY20E/FY21E earnings forecasts unchanged for now. TP is RM6.30 based on unchanged 22x FY21E EPS. The re-rating catalyst is expected to come from renewed optimism in the yet to be signed OA and gradual re-opening of borders.

Risks to our call include: (i) prolonged Covid-19 disruption beyond the mid-year resulting in lower-than-expected passenger volume, and (ii) weaker-than-expected WACC from the RAB

Source: Kenanga Research - 16 Jul 2020