While we expect a gradual recovery in air travel beginning 2H 2022, delayed border re-openings and inconsistent entry requirements for travellers may delay a strongly expected tourism recovery in the short term. However, further easing of travel restrictions alongside reduced quarantine requirements and better testing procedures will support a strong air travel revival in the coming quarters. For the sector, we prefer Malaysia Airport Holdings Berhad (MAHB), being the monopolistic airport operator in the country. The yet-to-be signed Operating Agreement (OA) could be a re-rating impetus for MAHB which we reiterate as an Outperform. MAHB is a beneficiary of border reopening, leveraging on the anticipated strong recovery for air travel. We maintain Market Perform on AirAsia (MP; TP: RM0.74). For stock picks, we like MAHB (OP; TP: RM7.65) being a monopolistic airport operator in the country and premised on gradual air travel recovery.

A tough FY21 but outlook cautiously improving. In their recently reported FY21 results, Malaysia Airports Holdings came in within expectations but AirAsia came in below. The string of losses over the past two years could come to an end or reverse as we move into 2H 2022 with the relaxation of travel restrictions and reopening of borders. Malaysia is expected to reopen its borders by 1 April 2022. While we expect a gradual recovery in air travel beginning 2H 2022, delayed border re-openings and inconsistent entry requirements for travellers may delay a strongly expected tourism recovery in the short term. However, further easing of travel restrictions alongside reduced quarantine requirements and better testing procedures, will support a strong air travel revival in the coming quarters. The Thai government has resumed its quarantine-free travel scheme from 1st February and is lowering entry requirements from 1st March 2022. The reopening of the Philippines to fully vaccinated international travellers without quarantine are positive factors.

Malaysia borders reopened. The move by Malaysia to reopen its borders on 1 Apr 2022 to fully-vaccinated travellers from all countries is positive to Malaysia Airports, requiring only a pre-departure PCR test and an on-arrival professionally-administered RT-Antigen (or ART) test within 24 hours of arrival. MAHB is a beneficiary of border reopening, capitalising on the anticipated strong low base recovery for air travel with domestic demand recover strongly back to 60% of pre-pandemic levels.

AirAsia’s outlook. AirAsia Group Berhad Consolidated AOCs recorded the highest quarterly load factor and capacity at 80% and 3.4m, respectively, in 4QCY21 since the beginning of the Covid-19 pandemic. Passengers carried increased 103% to 2.7m YoY in 4QCY21 which surpassed the capacity increase of 70%, leading to a 13ppt improvement in load factor to 80%. ASK grew by 72% YoY, primarily attributable to strong demand from the introduction of quarantine-free travel bubbles for Malaysia and the easing of travel restrictions in 4QCY21. YoY, 4QCY21 AirAsia Malaysia passengers carried and capacity increased by 164% and 139%, respectively. Load factor increased by 7ppt YoY and 19ppt QoQ to 80% in conjunction with the year-end festive season and increased frequencies on high demand routes including between Kuala Lumpur and Langkawi, followed by the Kuala Lumpur to Kota Kinabalu route in November and December 2021. AirAsia Indonesia posted a high load factor of 81% in the 4QFY21, which grew 22ppt YoY driven by increased frequency of flights in line with growing demand, particularly in December 2021. AirAsia Philippines continued to outperform with load factor achieving 85% for the 4QFY21 as a result of strong pent-up demand in a number of core destinations including Cebu, Cagayan de Oro, Boracay, and Tacloban. 4QFY21 Teleport revenue grew 274% YoY thanks to the strategic growth of cargo network, undertaken to compensate the 90% reduction to pre-pandemic passenger network capacity. EBITDA returned to the black in 4QFY21 as cargo margins improved significantly during 4QFY21 as well as the network being optimised to take advantage of the seasonal upturn in yields. Airasia Super app revenue grew by 51% YoY driven by Travel vertical, Airasia ride, and breakage income which brings in a positive EBITDA of RM8.9m (3QFY21: EBITDA losses of RM70m). BigPay continued to focus on growth with strong market adoption, accelerating user growth momentum which led to wider EBITDA losses of RM47m compared to RM33m in 3QFY21. With leaner and more optimised airline operations, and as more restrictions continue to ease, we expect the current sales momentum and reduced cash burn trend to continue through 2022. Through various fund-raising exercises, the Group has raised more than RM2.5b in the last two years. With renewed optimism for air travel, we raise out TP from RM0.65 to RM0.74 based higher PER multiple from 14x to 16x based on FY23E EPS.

Potential re-rating for MAHB if OA is signed; a recovery play on renewed optimism for air travel. Recall that on 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 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 path for MAHB which has been hit by COVID-19 in terms of passenger traffic growth both in Malaysia and Turkey. With renewed optimism in the yet to be signed OA, we raise out TP from RM7.00 to RM7.65 based higher PER multiple of 25x (from 23x) on FY23E EPS estimate due to renewed optimism for air travel.

Source: Kenanga Research - 6 Apr 2022