• Still NEUTRAL and MYR7.60 TP, 12% upside. Despite a mostly challenging 2022, Malaysia Airports ended the year with strong 4Q earnings that turned it back to the black. Moving forward, we believe MAHB will benefit from the gradual return of Chinese travellers and the recent Budget 2023 announcement, which saw provisions for the expansions of Penang International and Subang Airports – hence boosting passenger traffic. This report marks the coverage transfer to Alexander Chia.

• 4Q22 earnings jumped >100% to MYR359.1m, bringing the full-year figure to MYR 187.2m. This result indicates that MAHB has finally turned the corner. Revenue for the group grew 86.9% YoY to MYR3,127.9m, in tandem with higher traffic volumes at both its airport and non-airport businesses. While we saw major improvements across all segments, MAHB’s Malaysia’s operations remained loss-making (-MYR177.4m; +66.6% YoY). This was offset by its Turkey operations, which posted a full- year earnings of MYR 364.6m (+>100% YoY).

• Traffic volumes show strong recovery on a better domestic and international passenger mix. Fully owned Turkish asset Sabiha Gokcen International Airport posted a 2022 traffic recovery of 86.7% on a 49.6% and 50.4% domestic and international passenger mix. This is expected to drive higher revenue yields from passenger service charges. MAHB expects the traffic recovery for operations there to continue being driven by international travel demand, which is likely to exceed pre-COVID-19 levels.

• Outlook. With China officially reopening its borders, FY23 passenger volumes should continue to fare better – we believe China is an essential catalyst for the tourism industry, as it was the second-highest contributor to inbound foreign travellers into Malaysia in FY19. We are positive on the potential footfall recovery from regional visitors, especially the potential footfall recovery from China. This is further complemented by airlines’ optimism through the introduction of new routes, additional frequencies, and capacities. We understand there are >49 Malaysia-China flights/week – this is set to increase to 236 by 1Q23. We also believe MAHB will benefit from the recent Budget 2023 announcement, which allows the airport operator to take charge of upgrading and expanding Penang International and Subang Airports, hence increasing passenger traffic.

• Still NEUTRAL. We retain our earnings forecasts and MYR7.60 TP, which translates into 21.8x forward FY23F P/E. With the recent share price run- up, we think the essential catalysts have largely been priced in, with the current share price trading at 19.5x, ie on par with its historical mean. Our TP incorporates a 4% ESG discount. Key risks include the unexpected resurgence of COVID-19 cases in China, and lower-than-expected passenger volumes and service charges.

Source: RHB Research - 1 Mar 2023