• Keep BUY and MYR8.70 TP, 20% upside. International passenger movements achieved their highest monthly recovery rate of 92.5%, defying September’s seasonal dips. Despite the aviation industry’s recent turbulence, we believe the impact towards airport operators are minimal, reaffirming our positive stance on Malaysia Airports. As we move closer to the year’s end, we anticipate a continued resurgence in both domestic and international tourism numbers, which will benefit MAHB, in our view.

• September traffic snapshot. Even during a historically subdued month (September), MAHB’s passenger movements reached 10.3m, trailing close to 90% of Sep 2019’s numbers. International and domestic passenger movements stood at 5m and 5.3m. International passenger movements translated into a recovery rate of 92.5% vs Sep 2019’s rate, representing the highest monthly achievement in reaching pre-2019 levels.

• Malaysia. Despite the regional challenges posed by a typhoon, international traffic in September (3.3m) rebounded to reach 79.3% of 2019’s levels – the highest recovery rate for monthly traffic. 3Q23 total passenger movements stood at 21.7m or 80.9% of 3Q19 levels, with international and domestic movements standing at 10.3m and 11.4m. This brought 9M23 total passenger numbers going through MAHB’s local airports to 60.7m or 65.6% of our full-year forecast. Nevertheless, we retain our view that the Malaysia segment is poised for a robust 4Q23 tourism recovery, driven by airline service resumptions, the school holidays peak travel season, and a stronger resurgence in outbound Chinese tourism.

• Turkey. Passenger movements for September recovered 106.5% to 3.4m, remaining above the 3m mark at the tail-end of the summer travel season. 3Q23 total passenger movements of 10.9m (107.9% of 3Q19’s levels) were mostly driven by the salient recovery in international traffic. International and domestic movements stood at 5.6m and 5.3m, which is a recovery rate of 133.5% and 89.8% vis-à-vis 2019. The 9M23 total passengers of 28.1m met expectations – at 73.5% of our full-year estimate – which was propelled by the summer travel season and strategic airline route expansions.

• Valuation. As Malaysia and Turkey’s 9M23 passenger traffic accounted for 65.6% and 73.5% of our FY23 estimates, we deem this as in line – we expect a stronger recovery for Malaysia in 4Q23. We make no changes to our earnings estimates and our DCF-derived MYR8.70 TP, which incorporates a 4% ESG discount. This implies 7.5x 2023F EV/EBITDA. We still prefer MAHB within the transport sector, given that the stock’s current valuation of 5.29x is still undemanding vis-à-vis its pre-COVID-19 valuation of 8.1x.

• Key risks include lower-than-expected passenger volumes and passenger service charges or PSCs, as well as higher-than-expected opex.

Source: RHB Securities Research - 23 Oct 2023