9MFY20 core net loss came in at RM431m compared to our full-year net profit forecast of RM172m and consensus’ RM455m. We deemed the results to be below our expectation due to lower-than-expected passenger movements. The announcement of vaccine development is positive for air travel as a post COVID-19 play. We now forecast a loss of RM690m compared to a profit of RM172m taking into account of lower passenger movements and maintain our FY21E earning and TP of RM6.30.

Results’ highlights. QoQ, 3QFY20 revenue rose 46% in tandem with the improvement of passenger movements upon resumption of domestic flights from 1 June 2020 and international flights from 11 June 2020 at ISGIA, Turkey. Specifically, airport operations’ revenue rose 46% due to higher revenue from the aeronautical (+400%) albeit on a low base effect in 2QFY20 which more than offset lower non-aeronautical (-37%). Passenger traffic for the Malaysia operation rose to 4.5m compared to 0.8m in 2QFY20. Similarly, Turkey passenger movements, rose to 4.8m compared to 0.6m in 2QFY20. However, 3QFY20 losses widened to RM320m compared to RM91m in 2QFY20 due to absence of one-off tax credit (RM132m) enjoyed in 2QFY20, higher depreciation in line with higher pax, higher staff cost (+14% QoQ) and additional provision for doubtful debts.

YoY, 9MFY20 revenue fell 59% in tandem with the 66% contraction in passenger movements due to the impact of COVID-19 pandemic and travel restriction imposed by Malaysia and other countries globally. Overall group passenger traffic at MAHB declined by 69.6% due to lower international (-76%) and domestic (-63%) passengers. Domestic passenger movement shown improvement in September, partly driven by pre-election movements and leisure travel to Sabah, Kuching, Langkawi, Penang and Kota Bharu. Non-Aeronautical revenue fell 57% arising from lower retail sales (-78%) and commercial revenue (-44%). Group cost decreased by 29.4% due to lower operating cost driven by cost containment initiatives including lower staff cost (-14%), utilities (- 22%), and maintenance (-26%) coupled with lower user fee, revenue share, depreciation and amortisation recorded during the period. However, due to wider losses at Turkey, 9MFY20 register a loss of RM431m compared to a profit of RM508m.

Outlook. September 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 correspond 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 traffic was opened from 11 June. 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.

We forecast a loss in FY20 but maintain our FY21E numbers. We forecast a loss of RM690m compared to a profit of RM172m taking into account lower passenger movements.

Re-iterate OP. The announcement of vaccine development is positive for air travel as a post COVID-19 play, potentially showing strong demand rebound in 2H 2021.No changes to our TP of 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 - 1 Dec 2020