An official blog in I3investor to publish research reports provided by RHB Research team.
All materials published here are prepared by RHB Investment Bank Bhd. For latest offers on RHB Invest trading products and news, please refer to: http://www.rhbinvest.com
RHB Investment Bank Bhd Level 3A, Tower One, RHB Centre Jalan Tun Razak Kuala Lumpur Malaysia
Still NEUTRAL, new MYR7.60 TP from MYR6.71, 9% upside. Malaysia Airports said the Government has approved new terms for the operating agreement (OA), highlighting the funding model for future capacity expansions, notably with the creation of the Airport Development Fund (ADF). While we await further granularity, we take this opportunity to correct our FY23 assumptions as we turn more positive on international passenger throughput. With the recent share price run-up, valuations are deemed fair – MAHB trades at around the 5-year mean.
Introducing new terms to the OA. The Government has approved in principle the new terms for the OA between itself and MAHB to operate and develop 39 airports until 2069. While the new OA has been in the works for a while now, the announcement highlights new enhancements to the OA’s terms, which include: i) The flexibility in the method of funding airport development costs (either using government allocations or via MAHB itself), ii) the establishment of the ADF and its terms, and iii) the Government’s right to restructure the airports industry, subject to the mutual agreement with MAHB. Pending further clarity by management at the briefing to be held later at 10am, we gather that further granular and material clauses have yet to be disclosed, as it is still in talks with the Attorney General’s Chambers or AGC. As such, the impact to earnings is difficult for us to ascertain at this juncture.
Dec 2022 operating statistics show strong signs of recovery. MAHB reported 83.9m passenger movements for 2022, whereby Malaysia and Istanbul Sabiha Gokcen International Airport both reached 67.9% and 86.7% of 2019’s levels – supported in part by the stronger-than-expected Dec 2022 showing. That said, FY23 volumes should continue to fare better, as we believe China remains an essential stimulant to the tourism industry. We gathered from management during our site visit at end January that Malaysia received c.65k travellers in total from China, Taiwan, and Hong Kong since 8 Jan. Additionally, Kuala Lumpur International Airport or KLIA’s Main Terminal (KLIA1) is expected to receive an average of 10 flights/day since China opened its gates. Concurrently, MAHB has been in talks with existing and new airlines to resume and add on new capacities, such as through the creation of new routes.
Correcting our assumptions. Having previously been a tad conservative with our assumptions, we now turn more positive on the prospects of higher international passenger volumes in FY23, owing to pent-up demand from China. Adjusting our assumptions accordingly to 80-100% of pre-pandemic levels, our FY23F-24F earnings are raised by 15-20%. Correspondingly, our TP is raised to MYR7.60, which implies 22x FY23F P/E, ie around the mean. We deem this valuation as fair.
Risks include the unexpected resurgence/faster resolution of COVID-19 cases in China and slower-/faster-than-expected finalisation of the OA.
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....