• Keep NEUTRAL and MYR7.20 TP, 10% upside. 1Q22 results were broadly in line, supported by the YoY recovery in passenger throughput from a low base. Losses are expected to narrow further in FY22, as the high vaccination rates and reopening of borders will lead to a normalisation in international passenger volumes, in our view, albeit gradually. We believe much of the recovery theme has been priced in and stay cautious of the continuing lockdowns in China, which are impacting the momentum of international travellers at Malaysia Airports’ domestic operations.

• 1Q22 net loss of MYR104.8m broadly met our expectations at 32% of our FY22 net loss forecast, but was below Street’s estimate at 85%. On a YoY basis, 1Q22 revenue grew by 69.4% on the recovery in passenger throughput from a low base within the aeronautical segment, with passenger volumes at 14.7m for the quarter (1Q21: 5.9m). The non-aeronautical segment saw a 44.3% YoY growth from higher commercial revenue from MAHB’s Malaysia and Turkey operations. Correspondingly, a 1Q22 loss after tax & zakat (LBT) narrowed to MYR150.4m (1Q21: MYR280m loss). On a QoQ basis, 1Q22 revenue increased by 3.5%, dampened by the Omicron wave that led to a contraction in passenger volumes in Turkey. LBT did narrow 30% QoQ, supported in part by lower opex. We expect FY22 to report narrowing losses, driven by improved passenger traffic, which will be aided by the easing of travel restrictions.

• Foreign travellers may take time to gain traction. 1Q22 passenger volumes only stood at 44% of 1Q19 levels while April’s was at 42% of Apr 2019’s thresholds – international was at c.15% of Apr 2019’s numbers while domestic was at c.49%. The Malaysian Aviation Commission expects FY22 to see passenger volumes standing at 35-40% of FY19’s numbers. We estimate passenger volumes would have to be above the 75% mark – with a 50:50 split between foreign and domestic travellers (vs the surplus in local travellers in April) – for MAHB to return to profitability. We think this may take time to materialise, given the lockdowns still in place in key countries like China, which was the second-highest contributor to inbound foreign travellers into Malaysia in FY19. Nevertheless, with MAHB’s share price having rallied 60% from its 2-year low in Oct 2020, we believe the prospects of a recovery have largely been priced in already. The company’s net gearing stands at 0.43x, and its contingency lines amount to MYR1.3m to capitalise on the low-rate environment.

• Maintain NEUTRAL. We now expect a narrower loss of MYR286m from a MYR334m loss previously, and are turning slightly more optimistic on international throughput. Our TP is unchanged at MYR7.20, which includes a 4% ESG discount, and implies 25x FY23F P/E or -0.5SD from its historical mean. Downside/upside risks to our TP and earnings estimates include the continued resurgence/faster resolution of COVID-19 cases and lower- /higher-than-expected passenger volumes and service charges.

Source: RHB Research - 31 May 2022