1HFY20 core net loss came in at RM111m compared to our full-year net profit forecast of RM172m and consensus full year net loss of RM362m. We deemed the results to be within our expectation in anticipation of a 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.

Results’ highlights. QoQ, 2QFY20 revenue fell 70% in tandem with the contraction in passenger movements by 95%. Specifically, airport operations’ revenue declined by 73% due to lower revenue from the aeronautical (-91%) and non-aeronautical (-49%) segments due to the impact of COVID-19 pandemic and travel restriction imposed by Malaysia and other countries. Passenger traffic for the Malaysia operations contracted significantly by 95.7% (international: -97.7%, domestic: -93.8%). The passenger traffic for Turkey operation contracted by 91.5% (international: -100%, domestic: -86.0%). 2QFY20 recorded a loss of RM91m compared to RM20m in 1QFY20 due largely to widening losses at Turkey (RM151m compared to RM34m in 1QFY20). However, further losses were mitigated by lower total cost (-40% QoQ) and cushioned by the recognition of prior year tax recoverable.

YoY, 2HFY20 revenue fell 52% in tandem with the contraction in passenger movements of 61% due to the impact of COVID-19 pandemic and travel restriction imposed by the Malaysia and other countries globally. Revenue from the aeronautical segment decreased by 58% due to lower passenger movement. Passenger traffic for the Malaysia operation contracted 63% (international: -65%, domestic: -60%). The passenger traffic for Turkey operations contracted by 54% (international: -56%, domestic: -53%). Correspondingly, 1HFY20 register a loss of RM111m due largely to losses at airport operations.

Outlook. 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 operations after inter-city travelling was allowed from 1 June while international passenger movements were opened in 11 June. 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 for MAHB.

Re-iterate OP. TP is RM6.30 based on unchanged 22x FY21E EPS (- 1.0SD below historical forward mean).

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

Source: Kenanga Research - 28 Aug 2020