FY21 core net loss came in at RM766.4m compared to our net loss forecast of RM820m and consensus’ RM813m, coming in within expectations. Due to the later-than-expected recovery in air travel, we cut our FY22E net profit by 47%. However, we are cautiously optimistic for air travel to improve, at a gradual pace beginning 2H 2022. We roll- forward our valuation from FY22E to FY23E. TP is maintained at RM7.00 based on unchanged 23x FY23E EPS.

Results’ highlights. QoQ, 4QFY21 revenue rose 20% due to higher passenger volumes for Malaysia operations and international passenger volumes for Turkey operations. Revenue from airport operations increased by 21% due to higher aeronautical (+15%) in line with relaxation of travel restrictions in Malaysia which rose 5-fold from a low base to 6.7m passengers which more than offset lower Turkey operations (international: +10.0%, domestic: -28.8%) to 7.5m passengers due to the normal cyclical winter season. In tandem with higher passenger traffic, non-aeronautical segment revenue rose 29% due to higher rental and royalty revenue. Correspondingly, loss before tax narrowed to RM215m compared to RM255m in 3QFY21 due to higher revenue. 4QFY21 net loss narrowed to RM137m compared to RM182m in 3QFY21 due to narrower losses at its Malaysian unit and cushioned by the recognition of deferred tax asset. No dividend was declared in this quarter.

YoY, FY21 revenue fell 10% in tandem with lower aeronautical (-13%) revenue. Passenger movements for the Group continued to show signs of traffic recovery from COVID-19, albeit at different pace in Turkey and Malaysia. Turkey operations showed signs towards normalisation as passenger traffic had increased by 47.7% (international: +69.8%, domestic: +37.8%) to 25.4m. Malaysia recorded a decrease in passenger movements by 58.5% (international: -86.3%, domestic: - 42.3%) to 10.7m passengers. The non-aeronautical segment revenue decreased by 16% due to the lower commercial rental revenue for Malaysia operations. FY21 losses narrowed by 31% to RM766m due to narrower losses in Turkey.

Downgrade our FY22E net profit by 47% to due to the later-than- expected travel recovery. We introduce FY23E earnings.

Outlook. The SIN-KUL VTL, resumption of Umrah travel and the introduction of several new domestic routes are some of the recent developments which will continue to drive traffic recovery in the near term. MAHB remains cautiously optimistic on the continued recovery, whilst closely monitoring the developments of the VOC, booster vaccines efficacy and travel restrictions and its impact to the passenger traffic recovery. Travel restrictions have been lifted gradually from the end of the first quarter in 2021, in anticipation of the peak summer season and the high vaccination rates. The equivalent acceptance of the EU Digital COVID certificate and TurkishCOVID-19 certificate had helped fuelled passenger movements to and within Turkey. Nonetheless, the recent escalation of conflict between Russia and Ukraine had led to the temporary closure of Ukraine airspace. In this respect, the Group is cautiously monitoring the development of the conflict and continuously assessing the impact to international travel for ISGIA.

Reiterate OP. However, we are cautiously optimistic for air travel to improve, at a gradual pace beginning 2H 2022. We roll forward our valuation from FY22E to FY23E. TP remains unchanged at RM7.00 based on unchanged 23x FY23E EPS. (-0.5 SD below 5-year pre- pandemic 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 - 1 Mar 2022