KEY INVESTMENT HIGHLIGHTS

• MAS suspends delivery of 25 Boeing 737 MAX with five initially planned to be delivered this year

• Meanwhile, AAGB plans 4 aircraft delivery to Malaysia

• Therefore, AAGB could benefit from grabbing MAS’s market share assuming the suspension remains throughout 2020

• Strengthened market share will translate into higher passenger traffic at klia2

• Earnings estimates unchanged

• Maintain BUY with unchanged TP of RM2.04 per share

MAS suspends Boeing 737 MAX delivery. Malaysia Airlines (MAS) has decided to suspend the delivery of 25 Boeing 737 MAX jets amidst the plane’s delayed return to service. The 737 MAX have been grounded since March last year following the Lion Air and Ethiopian Airlines incidents. Other airlines that have followed suit include American Airlines which extended its Boeing 737 MAX cancellations through June 2020 while Air Canada and WestJet have kept the said aircraft off their schedules until at least March this year. Closer to Malaysian shores, Silk Air which has six Boeing 737 MAX aircraft has relocated its fleet for a long-term storage at a “plane graveyard” in Central Australia.

AAGB to be a potential beneficiary. Out of the 25 deliveries of the Boeing 737 Max jets being suspended by MAS, the airline previously planned to have 5 of the said aircraft delivered in 2020. Assuming that MAS will not replace these Boeing 737 MAX deliveries, other airlines particularly AAGB is set to benefit by capturing the capacity. The Boeing 737 MAX is a narrowbody jet with a capacity of 160 to 220 passengers. AAGB’s Malaysian arm, Malaysia AirAsia (MAA) on the other hand is expecting a delivery of 3 new A321 neos (236 seats each) and one A320 neo (186 seats) in 2020. Therefore, we believe that AAGB’s fleet plan for Malaysia is poised to grab some market share from MAS, increasing its share of circa 60.0%. Moreover, this will stand well with the expected increase tourism activity in conjunction with the Visit Malaysia Year 2020.

Impact towards passenger growth in klia2. In line with the expectation of AAGB grabbing more market share of MAS, we believe that it will have a positive impact to passenger traffic in klia2. Recall that in 2019, klia2 saw total passenger traffic of 1.3m compared to 1.1m in KLIA Main Terminal. Furthermore, KLIA2 recorded a higher growth in international traffic of +3.8%yoy in 2019 compared to the +2.4%yoy growth recorded at KLIA Main Terminal during the same year. As such, we believe that AAGB will continue to attract more passenger traffic to klia2 in 2020.

Source: MIDF Research - 16 Jan 2020