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NEUTRAL, new SOP-derived MYR7.20 TP from MYR6.36, 4% upside. International borders reopen today. While this signals a further boost in passenger traffic – which has been gaining momentum in recent months, on the back of encouraging vaccination rates – a return to pre-pandemic levels will be a gradual process, in our view. We remain cognisant of near- term challenges, especially uncertainties that may arise from new COVID- 19 variants, which dissuade us from being more aggressive with our valuation.
In tandem with the transition to endemicity, the reopening of borders starting 1 Apr, and quarantine-free travel for double-vaccinated visitors can be expected to give the local tourism sector a much-needed boost. SOPs now only include a pre-departure PCR test and an on-arrival RTK test. This signals a relatively hassle-free travel experience, paving the way for pent- up demand for travel to underpin earnings recovery in the coming quarters.
Passenger volumes should see a gradual pick-up. Recall that Feb 2022 saw passenger volumes rebounding by +186% YoY from a low base, as FY21 saw stringent lockdowns and low vaccination rates. More importantly, Feb 2022 passenger volumes stood at only c.44% of Feb 2019’s levels (international: c.7% of Feb 2019, domestic: c.60%). The Malaysian Aviation Commission or MAVCOM expects FY22 to see passenger volumes at 35- 40% of FY19 levels. That said, the reopening of borders and quarantine- free travel should result in higher passenger volumes and higher passenger service charge for international travellers (MYR35.00-75.00/person vs MYR11.00/person for domestic travellers). The non-aeronautical commercial and hotel segments should also benefit from the incoming traffic. That said, we believe our FY22 passenger volume forecast (55% of pre-pandemic levels) is reasonable.
Risks still linger beyond FY22. We believe full-year earnings will normalise to pre-pandemic levels only in FY24. Despite the reopening of borders by many countries in the region, near-term challenges to passenger throughput in FY22-23 recovering to FY19 levels, in our view, will be premised on the; i) Threat of new variants that may lead to rolling suspensions in travel, ii) non-vaccinated status for many dependents, iii) new requirement for all incoming travellers to buy travel and COVID-19 insurance, iv) weaker spending power of regional travellers (which make up a bulk of MAHB’s international passengers in Malaysia), all of which pose a downside risk to our passenger volume assumptions.
NEUTRAL. We revise our earnings forecasts for FY23-24 upwards by 12- 15% after updating our passenger volume forecasts (to 90-95% of pre- pandemic levels) and lifting our TP to MYR7.20, which includes a 4% ESG discount on indicative fair value of MYR7.50. Our TP implies a 25x FY23F P/E – around -0.5SD from its historical mean. Our WACC assumption is unchanged: Malaysia and Turkey operations stand at 8.5% and 13%.
This book is the result of the author's many years of experience and observation throughout his 26 years in the stockbroking industry. It was written for general public to learn to invest based on facts and not on fantasies or hearsay....