Review

• Malaysia Airports’ (MAHB) 1H23 core profit of RM196.7mn beat our expectation at 80.6% of our full-year forecast but within consensus estimates. The variance was due to 1) higher-than-expected margins resulted from improved operational efficiency and cost control, and 2) higher revenue from hotel operations.

• MAHB’s 2Q23 profit jumped 69.2% QoQ to RM123.6mn underpinned by revenue growth and margin expansion. The revenue growth of 19.1% QoQ was contributed by steady recovery in travel demand, leading to higher aeronautical (Figure 1) and non-aeronautical revenue. Meanwhile, the PBT margin expansion of 5.0%-pts QoQ was due to improved operational efficiency. For 2Q23, total passenger movements improved 7.5% and 12.3% QoQ for Malaysia and Türkiye operations (Figure 3 & 4), respectively.

• Cumulatively, 1H23 revenue and EBIT surged 79.8% and 300% respectively due to low base effect as Malaysia reopened its international borders in Apr-22.

Impact

• We revise our FY23-25 earnings projections higher by 20.6-62.2% to RM395.9-668.8mn after revising: 1) FY23 direct cost lower by 14%, and 2) FY23-25 hotel revenue to RM85-90mn (from RM63-67mn previously).

Briefing highlights

• For Aerotrain project, management reaffirms that it is still in the design stage and construction has not yet started. Having said that, the group is confident that it could play a catch-up to complete the project and commence operations of first aerotrain by July-2024. In terms of costing, there would be no significant change from the initial capex and opex budgeted for the project, i.e., app. RM600mn.

• China’s reopening continued to gain momentum with June’s passenger movements for the Malaysia-China sector recovered to 40% of 2019 levels, versus merely 5% in Jan-23. Looking forward, the recovery is expected to sustain at above 50% of 2019 levels for the remainder of 2023 due to increase in flight capacity.

• With regards to the new operating agreement, management believes it will be signed by the end of this year. In specific, management indicated all the terms of the agreement have been agreed, awaiting final clearance from the attorney general. That said, management is making its last effort for PSC adjustment to include the recent escalation in ICPT charges which have impacted the group’s bottomline.

Valuation

• We maintain our Hold recommendation on MAHB with a revised FCFE valuation of RM7.50/share (from RM7.40/share) based on a discount rate of 12.2%.

Source: TA Research - 25 Aug 2023