We maintain our NEUTRAL view on the sector. We project tourist arrivals to hit 31m in CY25, up 15% from an estimated 27m in CY24, and surpassing 26.1m in CY19 i.e. before the pandemic, driven by higher demand for both business and leisure air travel. The number is consistent with Tourism Malaysia's target of 31m. This will translate to a sustained recovery in passenger throughput at AIRPORT (ACCEPT OFFER; TP: RM11.00) and passengers carried at CAPITALA (MP; TP: RM1.06). For AIRPORT, the consortium proposing to privatise AIRPORT has extended the closing time and date for the acceptance of its takeover offer from 8 Jan CY25 to 17 Jan CY25. Thus far, the acceptance level has hit 84%. Meanwhile, while CAPITALA has been able to fill up seats in its planes, there is room to boost yields to ensure profitability after accounting for depreciation, aircraft leasing charges and finance cost. We do not have any pick for the sector.

Tourist arrivals underpin passenger throughput growth in CY25. We project tourist arrivals of 31m in CY25, up 15% from an estimated 27m in CY24 and surpassing 26.1m in CY19 before the pandemic, backed by higher demand for both business and leisure air travel. The number is consistent with Tourism Malaysia's target of 31m (see Exhibit 1). A key driver is Chinese tourists that historically contributed to about 12% of total tourist arrivals in Malaysia. Specifically, China and India's 30-day visa free travel into Malaysia led to an 82% increase (Dec 23−Sep 24 vs Feb 23−Nov 23). In September, China and India's recovery stands at 123% and 90% respectively against 2019 levels. Also helping is China agreeing to extend its visa exemption facility for Malaysian citizens until the end of 2025 while Malaysia will extend the visa exemption for Chinese citizens until the end of 2026. To recap, Malaysians entering China from 30 Nov 2024 will be able to enjoy visa-free stays from 15 days previously to 30 days until 31 Dec 2025. These should drive growth in AIRPORT'S passenger throughput and CAPITALA's passenger demand in CY25.

AIRPORT privatisation status, thus far 84% acceptance level achieved. Gateway Development Alliance (GDA), the consortium proposing to privatise AIRPORT, has extended the closing time and date for the acceptance of its takeover offer by a week i.e from 8 Jan CY25 to 17 Jan CY25. Thus far, the acceptance level has hit 84%. Once the acceptances hit the 90% mark, it will enable the consortium to delist AIRPORT. If it fails to hit the 90% acceptances required, the joint offerors and the joint ultimate offerors reserve the right to revise the level of the acceptance condition to a lower level, subject to the Securities Commission's approval. Note that according to a circular to shareholders filed to Bursa Malaysia, the independent adviser deemed the offer reasonable in the absence of a competing offer and advised shareholders of AIRPORTS to accept the offer, as it represents a chance for them to exit. However, it deemed the offer as unfair as it represents a 12.5%−19.8% discount to their estimated fair value of between RM12.61 and RM13.71 per AIRPORTS share, based on a sum-of-the-parts valuation. Nevertheless, the offer price of RM11.00 represents a premium of RM6.11 or 124.95% to MAHB's latest unaudited net asset per share of RM4.89.

We project AIRPORT's system-wide passenger throughput to rise by 11% to 146m in CY25. The group is optimistic of a resurgence in passenger numbers and connectivity, expected to be driven by the introduction of new airlines and services at key airports, including Kuala Lumpur International Airport, Penang, Kota Kinabalu and Langkawi. The commencement of new airlines, including Air India to Delhi, once weekly frequency of 9 Air to Guiyang and Lucky Air with weekly frequencies to Lijiang City, partly contributed to international passenger movement growth for China and India. The international passenger movements were also supported by AirAsia's new operations from KLIA to Labuan Bajo and Lucknow while Malaysia Airlines has commenced daily flights to Da Nang.

Subang Airport's proximity to Kuala Lumpur city centre will reduce travel times, benefiting business travellers and tourists. In addition, the reactivated rail link between Subang and Kuala Lumpur will ensure seamless transfers, making it easier for passengers to move between the city and the airport.

CAPITALA's regularisation plans to exit PN17 in the works. The proposal to dispose of its aviation business has received shareholders' approval at the extraordinary general meeting (EGM) in mid-October. The group is now in its final stages where it needs to fulfil the conditions precedents set forth in the proposal, while waiting for approval from the High Court. The group aims to complete the aviation business disposal by January 2025 and exit the PN17 status by 1QCY25, subject to the necessary waiver and approvals from Bursa Malaysia and other regulatory authorities.

To capitalise on the robust demand, the group is currently prioritising the active expansion of its capacity and network to meet growing demand. It reiterated that the passenger throughput recovery is gaining traction and anticipate recovery to 84% of its pre- Covid capacity. In 4QCY24, the group will further expand its fleet with the introduction of four new A321neo aircraft in Malaysia and one in Thailand, increasing total active aircraft to 205 out of 224. Additionally, it will launch 18 new routes, driving double-digit increases in capacity both domestically in Malaysia and Thailand, and on international sectors in Indonesia. This expansion is well-timed to capture the strong, sustained travel demand during peak periods in China and India, as well as the global year-end festivities, positioning it to capitalise on these market opportunities and fuel growth trajectory.

Meanwhile, the engineering arm ADE is transforming the existing two lines in Senai into a specialised paint hangar. This adjustment brings the total to 16 active lines by the end of the year. Concurrently, ADE has secured an additional plot of land with the capacity for four lines from Malaysia Airports Holdings Berhad (MAHB), with construction set to begin in 1QCY25. To enhance its marketplace, Aerotrade, ADE will continue to onboard more buyers and sellers, increasing its platform's diversity and reach, enabling clients to access a wider selection of high-quality, authentic parts directly from manufacturers.

Source: Kenanga Research - 9 Jan 2025