• Still NEUTRAL, new SOP-derived MYR6.71 TP from MYR6.60, 6% upside. Results exceeded our expectations, with 3Q22 seeing a further narrowing of losses thanks to the continued recovery in international passenger volumes. While we stay cautious of China’s zero-Covid policy – which may be a stumbling block to Malaysia Airports’ full-fledged recovery to pre-pandemic levels and passenger service charges (PSC) staying put – we look forward to further volume recovery from the higher optimism demonstrated by airlines via additional frequencies, capacities, and routes.

• In line with market expectations. MAHB’s net loss narrowed to MYR9m in 3Q22, leading to a 9M22 net loss of MYR171.9m (vs MYR629.7m in 9M21). While the results came in above our expectations at 60% of our full- year forecasted loss, it was broadly in line with consensus’ at 91% – considering the further narrowing of losses expected in 4Q22 – backed by seasonality factors. YoY, 9M22 revenue grew by 89.4% from a low base due to the recovery in passenger movements within the aeronautical segments in Malaysia and Turkey. The 85.2% YoY growth in revenue for the non-aeronautical segment was from higher commercial contributions for both Malaysia and Turkey operations. Correspondingly, 9M22 loss after tax & zakat narrowed to MYR171.9m. We expect FY22 to continue seeing narrowing losses, as passenger traffic sees a steady pick-up.

• Outlook. Despite the stronger-than-expected recovery in foot traffic at MAHB’s airports, we maintain cognisance of the volume shortfall resulting from the ongoing lockdowns in China – the country was the second top contributor to inbound foreign travellers into Malaysia in FY19. Elsewhere, the Malaysian Aviation Commission’s proposal to maintain airport tariffs at this juncture also proves unfavourable in the face of muted passenger throughput. That said, we turn more positive on the potential footfall recovery from visitors in the region, upon the reopening of borders for Japan, Taiwan, and Hong Kong, further complemented by airlines’ optimism through the introduction of new routes, additional frequency, and capacity. MAHB’s net gearing is at 0.42x, and the group has sufficient contingency lines amounting to MYR1.3m to capitalise on the low rate environment.

• We narrow our FY22F losses to MYR192m, expecting 4Q22 losses to continue narrowing on the back of improved throughput. Our FY23-24 forecasts are unchanged. Our TP is raised to MYR6.71 (includes a 4.4% ESG discount), implying a 23x FY23F P/E (-0.5SD from its historical mean).

• Risks. Downside/upside risks to our TP and earnings estimates include the continued resurgence/faster resolution of new variants and lower-/higher- than-expected passenger volumes and service charges.

Source: RHB Research - 30 Nov 2022