AIRPORT’s 1HFY22 results missed our forecast but met market expectation. We expect further improvement in passenger number as we enter 2H 2022. However, the recent proposal by MAVCOM to keep tariffs unchanged could significantly raise MAHB’s earnings risk. We cut our FY22F net profit by 53% but maintain TP of RM6.05 (that is based on FY23F earnings). Reiterate MARKET PERFORM.

AIRPORT reported a net loss of RM163m in 1HFY22, vs. our full year net profit forecast of RM268m and the full-year consensus estimates of a RM219m net loss. We consider the results below our forecast but in line with market expectation. The variance against our forecast came largely from lower-than-expected passenger throughput.

1HFY22 revenue rose 90% in tandem with a 3-fold increase in passenger throughput to 34m (50% of pre-COVID volume). Specifically, passenger throughput in Malaysia rose to 20m compared to 3m in 1HFY21. Similarly, in Turkey, passenger throughput rose 53%. Consequently, airport operations revenue rose 100% due to higher aeronautical (+124%) and non aeronautical (+75%) segments. The better performance from non-aeronautical was due to higher retail revenue attributed to an increase in international passenger. EBITDA rose >100% due to higher yielding international passenger throughput in Turkey. Correspondingly, loss after tax narrowed to RM163m compared to RM447m in 1HFY21 due to narrower loss at Turkey which was cushioned by the recognition of deferred tax asset. Its Turkey operation recorded 1HFY22 losses of RM51m compared to RM177m in 1HFY21. No dividend was declared in this quarter.

Outlook. We like Malaysia Airports being the dominant airport operator in the country. We expect further improvement in the passenger number as we enter 2H 2022. Total MAHB’s network of airports passenger traffic continued to gain traction in July 2022, recording 7.8m, bringing 7M-YTD to 42m (+175%). We expect traffic trajectory to grow exponentially from low base in subsequent months driven by domestic seat capacity nearing 90% pre-COVID level from July and international seat capacity is expected to recover to at least 50% pre-COVID level during the same period before any further upward slot revisions in the Northern winter season. AirAsia and Scoot Airlines are the first international flights to resume services to Kota Kinabalu International Airport on 16th and 29th April, respectively, after two years of lull. Among the airlines that have resumed services at Penang International Airport and KLIA are Thai AirAsia, AirAsia X, Vietjet Air and AirAsia covering Bangkok, Incheon, Hanoi and Hat Yai. Royal Brunei Airlines has resumed services to Kota Kinabalu from Bandar Seri Begawan, utilising Airbus 320neo with two-time weekly frequencies. However, recent proposal to keep airport tariffs status quo could work against MAHB’s ability to generate enough cash flow for capex purposes, particularly for airport expansion and maintenance. While MAVCOM also proposes a mechanism for MAHB to recoup losses incurred during RP1 in RP2, we are concerned over MAHB’s cash flow over RP1. While the proposals in this MAVCOM consultation paper are not cast in stone, they do significantly raise MAHB’s earnings risk over the medium term.

Forecasts. Downgrade our FY22F net profit by 53% as we lower our passenger numbers in FY22 from 80m to 72m. We keep our FY23F earnings unchanged.

Reiterate MP. Our TP of RM6.05 is based on 22x FY23F EPS or at 40% discount to closest peer Airport of Thailand due to its smaller market capitalisation. Note that Thailand’s tourism revenue is 3x larger than Malaysia. There is no adjustment to TP based on ESG for which it is given a 3-star rating as appraised by us (see Page 4).

Risks to our call include: (i) endemic and pandemic occurrences, deterring air travel, (ii) unfavourable terms for airport operations; and (iii) risks associated with overseas operations.

Source: Kenanga Research - 26 Aug 2022