• Keep BUY, new MYR8.70 TP from MYR 8.31, 13% upside. We continue to favour Malaysia Airports premised on the salient recovery of international tourism numbers from China and Turkiye. The Malaysian Aviation Commission’s Third Consultation Paper is also expected to be published this month, which we believe will finally nail down the gazetted passenger service charges (PSCs) for Regulatory Period 1 or RP1 (2024-2026).

• Recap on YTD traffic. The YTD (7M23) international and domestic passenger number going through Malaysian airports stood at 20.9m and 25.4m, representing 44.2% and 49.5% of our full-year forecast. This was in line with our expectations. On the Turkiye side of MAHB’s operations, 7M23 international and domestic passenger movements stood at 10.9m and 9.98m or 70% and 46% of our FY23 estimates, ie above our expectation.

• China’s outbound numbers showing recovery signs. OAG’s August data shows China’s international airlines have resumed their capacities at a steady pace. International capacity of 4.6m seats during this period (50% of 2019’s level) has increased c.4x vs 1.1m in January (13% of 2019’s level). Though it may be too ambitious to see a full recovery in FY23, recovery is undoubtedly underway for China’s outbound visitors market. As of June, the Malaysia-China capacity and passenger movements have recovered to 57% and 40% of pre-COVID-19 levels, marking significant improvements since the tourist giant reopened its borders. We are positive that international tourism may improve further from 4Q23 onwards, based on China’s encouraging recovery trend (Figure 7).

• Passenger traffic revisions. We expect Sabiha Gokcen International Airport’s international traffic momentum to sustain into 2H23, in view of the strong year-end seasonality and upcoming new airlines/routes. We adjust FY23 traffic assumptions to better reflect the potential upside from the Turkiye operations, as previous assumptions (international traffic) were a tad bit conservative. We also revise Malaysia’s FY23 international passenger movements to 92.5m from 99.9m to reflect a slower recovery pace (Figure 2).

• We revise our FY23F-25F earnings by -3%, +9%, and +12% to account for the net effect from a delayed recovery from China and stronger international tourism movements in Turkiye moving forward. Our DCFderived TP is now MYR8.70 – with a 4% ESG discount – after we roll forward our valuation year to 2024. We still prefer MAHB within our sector coverage, given the stock’s current EV/EBITDA valuation of 5.58x – still undemanding vis-à-vis the pre-COVID-19 valuation of 8.1x.

• Key risks include border closures due to a pandemic, lower-than-expected passenger volumes and PSCs, and higher-than-expected opex.

Source: RHB Securities Research - 5 Sept 2023