AIRPORT’s 1QCY24 passenger throughput jumped 17% YoY, in- line with our expectation. We expect the recovery of business and leisure air travel to continue throughout FY24. On the flip side, while the recently announced tariff revision is positive to its earnings, it may not be sufficient to fund more aggressive capex plans. We keep our forecasts, TP of RM9.00 and MARKET PERFORM call.

1QCY24 system-wide passenger throughput met our expectation.

AIRPORT’s 1QCY24 system-wide passenger throughput (including Istanbul SGIA) came in within our expectation. Its total airport network of airports passenger traffic continued to gain traction in 1QCY24, recording 31m (+2% QoQ; +17% YoY) which came in at 23% of our full- year forecast of 131m (vs. 119m in 2023). As an indication that traffic recovery has continued to gain traction, 1QCY24 passenger movements reached 90% of 1QCY19 levels. Interestingly, international passenger throughput for 1QCY24 grew 34% YoY or exceeded 1QCY19 level by 5% mainly driven by Istanbul SGIA airlines’ strong international expansion recording a double-digit recovery rate of 73.8% over the same quarter in 2019, while Malaysia international passengers continued to register new highs. Domestic passenger throughput continued to record a steady growth, reaching 82% of 1QCY19 level with 14.5m passengers (+2% YoY). Amplifying the traffic growth was the increase in new airline operations, school holiday breaks, Chinese New Year festive seasons, airlines resuming routes and introducing new services, 30-day visa-free waiver for China and India travellers to Malaysia, 15-day visa-waiver to China, as well as new aircraft deliveries.

Its Malaysia operation’s total passenger movements continued to be buoyant, recording the highest traffic at 21.8m passengers since 2020 and reaching 85% of 1QCY19 traffic. International sector contributed 53% at 11.7m passengers with an 89% recovery rate over 1QCY19, while the domestic sector recorded 10m passengers reaching 82% of 1QCY19 levels. Similarly, its Türkiye operation namely Istanbul SGIA’s traffic continued to exhibit positive momentum. Passenger movements for Istanbul SGIA continued to show resilience in 1QCY24, recording >3m passengers each month. It is also noteworthy that the 1QCY24 international passengers for Istanbul SGIA exceeded 1QCY19’s by 17%.

Outlook. We expect business and leisure air travel to continue recovering throughout FY24. According to our in-house projection, tourist arrivals in Malaysia are expected to jump 35% to 27m (consistent with Tourism Malaysia’s projection to return to pre-pandemic levels) in FY24 from an estimated 20m a year ago (see Exhibit 1). A key driver is Chinese tourists that had historically contributed to an estimated 12% of total tourist arrivals in Malaysia. Furthermore, tourist arrivals are expected to be boosted by the 30-day visa-free regime for Chinese and Indian visitors to Malaysia starting from Dec 2023; and China allowing Malaysian inbound visitors 15 visa-free days between 1 Dec 2023 and 30 Nov 2024. This should underpin growth in AIRPORT’s passenger throughput demand in 2024.

Forecasts. Maintained.

Valuations. We also maintain our TP of RM9.00 based on 22x FY25F EPS at a 40% discount to its closest peer Airport of Thailand due to its smaller market capitalisation. Note that Thailand’s tourism revenue is 3x larger than Malaysia’s. There is no adjustment to TP based on ESG given a 3-star rating as appraised by us (see Page 4).

Investment case. We like AIRPORT given: (i) that it is the dominant airport operator in Malaysia and one of the largest in Türkiye, (ii) that it is a good proxy to the growing air travel and tourism locally, regionally and globally, and (iii) its strong shareholders who have demonstrated unwavering support through thick and thin (including during the pandemic and a massive cash call in 2014).

The recently announced tariff revision is positive to its earnings but may not be sufficient to fund more aggressive capex plans.

Maintain MARKET PERFORM.

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 - 24 Apr 2024