INVESTMENT HIGHLIGHTS

• Firefly gets approval to resume flying to Singapore but to Seletar Airport instead of Changi Airport effective late April

• Ranking of Firefly higher than Jetstar Asia in terms of number of flights for Kuala Lumpur to Singapore route

• Muted impact on overall revenue during suspension in late 2018 although Firefly makes up majority of international flights at Subang Airport

• Likewise, resumption of Firefly flights to Singapore to have limited impact on MAHB’s overall earnings

• Other airlines too could possibly operate flights to Seletar Airport in near future

• Maintain BUY with an unchanged TP of RM9.44 per share

Airpace issue resolved. Malaysia and Singapore ended its aerospace disputes following the withdrawal of Singapore’s Instrument Landing System (ILS) procedures for its Seletar Airport. Meanwhile, Malaysia will indefinitely suspend its permanent Restricted Area (RA) over Pasir Gudang.

Firefly to resume flights to Singapore. As such, Firefly will resume its flights from Subang Airport to Seletar Airport beginning late April 2019. Firefly’s flights to Singapore were suspended on 1 December 2018 as they were remaining matters in relation to Singapore’s plans to move turboprop aircraft operations from Changi Airport to Seletar Airport.

KUL-SIN is the top international route in Asia Pacific. The Kuala Lumpur-Singapore (KUL-SIN) route is the top Asia Pacific international route with more than 30,000 flights from March 2018 to February 2019 according to Official Aviation Guide (OAG). Based on MAHB’s guidance, Firefly operates around 4,000 flights on an annualized basis (assuming five to six return flights per day at minimum to and from Singapore). As such, Firefly would be ranked higher than Jetstar Asia in terms of number of flights to and from Singapore but capacity would be much lower as Firefly’s turboprop aircraft can only carry 72 passengers.

Impact on MAHB. The international sector contributes around 8.0% to the total passengers handled at Subang Airport which in turn makes up only 3.0% of MAHB’s total passengers in Malaysia. The majority of international flights at Subang Airport is operated by Firefly for the Subang to Changi route while Malindo Airways operates international flights to Hat Yai, Thailand on a seasonal basis. Nevertheless, the suspension of Firefly flights from Subang to Changi during late last year only saw the passenger service charge (PSC) collection reduce by less than RM0.5m, based on our analysis, immaterial to MAHB’s overall top line of above RM4.5b. Therefore, we expect the resumption of flights by Firefly to and from Seletar Airport to bring back to the PSC collections levels to normal but with minimal impact to MAHB’s overall earnings. As such, we are maintaining our earnings estimates for FY19 and FY20 at this juncture.

Paving way for other airlines to fly to Seletar Airport. While we view the resumption of Firefly’s flight to be minimal towards MAHB’s earnings, we believe that this news would pave way for other airlines such as Malindo Airways to operate flights between Subang Airport and Seletar Airport in future. Moreover, this will facilitate the commute of passengers residing in the Klang Valley to Singapore due to the location of Subang Airport which is nearer to cities in the Klang Valley. On a separate note, the regeneration of Subang Airport will enable Malaysia to attract more aerospace related activities in Malaysia as 4,000 new aircraft are expected to be delivered to the ASEAN region by 2037.

Maintain BUY. We believe that MAHB will maintain its upward trajectory especially in terms of passenger growth amidst the relaxation of visa policies for Chinese and Indian nationals visiting Malaysia. Moreover, we expect MAHB’s efforts in not only attracting more new airlines but also offering increased connectivity to moderate the effects of the departure levy set to be imposed in June 2019 for outgoing international passengers. As such, we reiterate our optimism that MAHB passenger numbers will surpass the 100m mark in 2019, while maintaining a relatively conservative growth rate of 3.5%. All things considered, we maintain our BUY call on MAHB with a TP of RM9.44 per share as it is a proxy to Malaysia’s inbound/outbound travel industry, being Malaysia’s largest airport operator. We opine that its undemanding valuations of a trailing PE ratio of 18.3x, compared to the average of its regional peers with a PE ratio of nearly 50x presents a good opportunity for investors to accumulate the stock.

Source: MIDF Research - 9 Apr 2019