• Maintain BUY, with new TP of MYR9.48 from MYR8.62, 12% upside. Malaysia Airport’s FY23 performance meets ours but surpassed Street’s estimations, driven by further improvement in traffic recovery, international passenger mix, and retail spending. We reaffirm our view of a full recovery by 2024 – supported by visa-free facilitation, expansion of airlines and hub connectivity, and resolution of regulatory overhangs. The group declared a DPS of 10.8 sen.

• FY23 met our expectation. MAHB's 4Q23 revenue of MYR1.37bn (+7.5% QoQ; 36.8% YoY) is propelled by improvement across all business segments – especially aeronautical (+7.5% QoQ; +38.1% YoY) and non-aeronautical (+8.1% QoQ; +39.6% YoY). The uptick aligns with the ongoing traffic recovery, which sees a higher international pax mix (higher passenger service charge and retail spending). While the group’s FY23 revenue has yet to return to its 2019 level (c.94.3% recovery rate), we note that the EBITDA is already close to 99.7% of FY19 level – reaffirming our confidence of seeing a full recovery in FY24. Overall, FY23 core earnings came in at MYR454.9m, excluding unrealised gains on FX and fair value of investment amounting to MYR125.1m in GMR Hyderabad International Airport Limited. This represents 100.4% and 115% of ours and consensus’ estimates.

• Looking ahead to 2024, the Malaysian Aviation Commission anticipates passenger traffic in Malaysia to reach 93.9-107.1m passengers, signifying a full recovery rate. Our in-house 2024 passengers forecast of 105.9m is also pointing towards full-recovery expectations (2019: 105.2m). Based on Jan 2024 traffic data, international passenger movements hit another new high (102% of 2019’s levels) – in line with our view. Regulatory clarity remains uncertain as the operating agreement (OA) 2019 approaches expiration, and is pending the Government’s consideration of aeronautical charges appeal. We anticipate the resolution of the aeronautical charges would inject new growth catalysts for MAHB’s earnings visibility going forward.

• We maintain our key assumptions as results are in-line, and wait for further details on aeronautical charges and revision of user fees. Our FY24-26F earnings are tweaked 2-4% following a capex assumption revision to accommodate the c.MYR400m KL International Airport aerotrain project (slated for completion by Mar 2025). We also upgrade its ESG score to 3.3 from 2.7 – encouraged by the group’s green initiative to install a 30MW solar farm to reduce electricity usage. Our new TP includes a 6% ESG premium. We maintain our BUY rating based on the aforementioned catalysts, and the current valuation of 7.7x EV/EBITDA remains compelling vs its pre-Covid-19 historical (11.2x) and regional peers (21.9x). Key risks include resurgence of COVID-19 cases and lower-than-expected passenger volume.

Source: RHB Research - 1 Mar 2024