1QFY22 core net loss came in at RM105m compared to our full-year FY22 net profit of RM268m but is within our expectation vs. consensus’ forecast net loss of RM109m. With passenger growth gaining momentum following the reopening of borders, we expect earnings to gradually gain momentum in subsequent quarters. TP is maintained at RM7.65 based on unchanged 25x FY23E EPS. Reiterate OP.

Results’ highlights. YoY, 1QFY22 revenue rose 69% due to higher passenger volumes for both Malaysia and Turkey operations. Revenue from airport operations increased by 75%, due to higher aeronautical (+107%) in line with relaxation of travel restrictions and gradual reopening of borders in several countries, which rose 2-fold to 14.7m passengers. Malaysia operations passenger traffic improved significantly to 8.3m vs. 1.7m passengers in 1QFY21. Whilst, Turkey operations continued to show passenger traffic recovery from 4.2m to 6.4m passengers during the same period. Correspondingly, loss before tax narrowed to RM150m compared to RM280m in 1QFY22 due to narrower loss at Turkey. 1QFY22 net loss narrowed to RM105m compared to RM221m in 1QFY21 cushioned by the recognition of deferred tax asset. No dividend was declared in this quarter.

QoQ, 1QFY22 revenue rose 4% in tandem with higher aeronautical (+10%) revenue. Passenger movements for the Group were mixed. Passenger traffic for Malaysia continued to show signs of traffic recovery from COVID-19, which rose from 6.7m in 4QFY21 to 8.3m in 1QFY22. However, passenger traffic for Turkey operations contracted by 14.7% (international: -6.1%, domestic: -21.4%) to 6.4m passengers vs. 7.5m in 4QFY21. The contraction in passengers for the Turkey operations arose due to the earlier wave of the Omicron variant in January and February 2022, with traffic improving in March 2022 as the number of cases began to fall significantly. Losses at Turkey operations recorded higher LAT due to higher utilisation fee (arising from the amortisation from deferment) after taking into account the loss of RM43m (4Q21: RM49m) primarily owing to the amortisation of fair value of concession rights. This brings narrower losses in 1QFY22 to RM105m vs. RM137m in 4QFY21 due to recognition of deferred tax asset.

Outlook. We highlight that passenger traffic are gaining momentum and expected to be higher in subsequent quarters. In April, the passenger movements for the MAHB's network of airports continued to show resilience, recording 4.9m passengers, which is the second highest traffic registered in 2022. Malaysia traffic resurgence was facilitated by the reopening of borders from 1 April 2022, the Aidilfitri week-long holidays, and the country’s transition towards an endemic phase. International passenger movements grew by 53% in April compared to March 2022 reaching more than 600,000 passengers for the first time. The further relaxing of COVID-19 SOP from 1 May 2022, is expected to ease international travellers’ journey and would further facilitate the resumption of international traffic in the months to come.

Reiterate OP. TP remains unchanged at RM7.65 based on unchanged 25x FY23E EPS. 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.

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 - 31 May 2022