1HFY21 core net loss came in at RM447m compared to our net loss forecast of RM662m and consensus’ net loss of RM814m for the full year. We deemed the results to be below our expectation due to worse-than-expected and prolonged Movement Control Order (MCO) impact and interstate travel ban. The expanding availability of vaccines, however, has renewed optimism for air travel to return to normal sooner- than-expected, and we expect air travel to improve at a gradual pace beginning end 2021. We raise our FY21E net loss by 24% to RM820m but we keep our FY22E net profit forecast unchanged. Maintain OP and TP of RM7.00 based on 23x FY22E EPS.

Results’ highlights. QoQ, 2QFY21 revenue fell 4% due to lower revenue from non-aeronautical segment (-18%) but mitigated by aeronautical segment (7.5%) due to improve passenger traffic from its Turkey operation. Specifically, passenger traffic for Turkey operation rose 14%, in line with further relaxation in travel restrictions in Turkey. However, passenger traffic for the Malaysia operation contracted by 24% to 1.3m impacted by the continuation of the MCO and renewed total lockdown from 1 June 2021. Correspondingly, loss before tax increased marginally to RM291m compared to RM281m in 1QFY21 due to decrease in revenue cushioned slightly by lower operating expenses and lower finance costs. The core operating expenses decreased by 2%, driven by the group's continuous cost containment initiatives. 2QFY21 net loss widened marginally to RM226m compared to RM221m in 1QFY21 due to narrower losses at Turkey and cushioned by the recognition of deferred tax asset. No dividend was declared in this quarter.

YoY, 1HFY21 revenue fell 45% in tandem with lower aeronautical (-46%) and non-aeronautical (-52%) segments. Passenger traffic for the Malaysia operation contracted by 84% due to lower international (-94%) and domestic (-76%) to 3m passengers. However, Turkey operation showed signs towards normalisation as passenger traffic rose 17% (international: -4%, domestic: +29%) to 9m. 1HFY21 losses widened to RM447m compared to RM111m in 1HFY20 due to wider losses in Malaysia operation. Core operating cost contracted by RM99.5m or 12%, in line with the group’s commitment to further reduce costs.

Outlook. The world-wide deployment of vaccines is building up optimism for air travel recovery as economies start to pick up the pieces. Nevertheless, traffic recovery is expected to be gradual in line with the distribution of vaccines coupled with the ongoing recovery of the global economy. Travel bubbles arrangements and short-haul travels are expected to pave the way providing air travel some initial tailwind in 2021. Locally, the high record daily vaccine doses administered provide some optimism for air traffic to re-start at least for the domestic sector traffic. The recent announcement made by the government to allow some flexibility for fully vaccinated people to travel between states and allow for tourism activities within the same state is an early indication for cautious traffic resumption.

We raise our FY21E net loss by 24% to RM820m but we keep our FY22E net profit forecast unchanged.

Re-iterate OP. The on-going vaccines deployment is positive for air travel, especially for MAHB as a post COVID-19 play, potentially enjoying strong demand rebound starting end 2021. Our TP is RM7.00 based on unchanged 23x FY22E EPS (-1.0SD below historical forward mean).

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

Source: Kenanga Research - 24 Aug 2021