Review

• Stripping out impairment on receivables (RM25.3mn), unrealised forex loss (RM30.2mn) and other exceptional items, Malaysia Airports’ (MAHB) 9M23 core profit of RM346.2mn beat our expectation at 87.4% of our full-year forecast and 85.4% of consensus estimates. The variance was due to higher-than-expected margins resulted from improved operational efficiency.

• MAHB’s 3Q23 profit increased sequentially by 20.9% to RM149.5mn underpinned by revenue growth of 3.6% QoQ, derived mainly from higher aeronautical revenue from Türkiye operations (Figure 1) and nonaeronautical revenue (Figure 2). For 3Q23, total passenger movements improved 9.5% and 19.8% QoQ for Malaysia and Türkiye operations, respectively.

• Cumulatively, 9M23 revenue and EBIT surged 66.8% and 155.1% 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 8.9-25.5% to RM496.8-728.4mn to account for higher FY23/24/25 retail spending assumptions of RM543.4mn/754.4mn/800.3mn (from RM473mn/731mn/776mn previously).

Briefing highlights

• With regards to the pending signing of new operating agreement (OA) and announcement of new PSCs (airport tax) for 2024, management believes it could still be executed by the end of this year. In terms of implementation of the new PSC, it would probably take 2 to 3 months for airlines to make all necessary preparations. Management reassured that the new OA would be the ‘enhanced’ version that safeguard the interest of all stakeholders.

• The impairment of receivables comprised mainly RM27.4mn dues from MyAirline, which has suspended operations in Oct-2023. According to management, MAHB will take all necessary actions to recover the dues. Meanwhile, all the routes served by MyAirline are being served by other airlines.

• 2024 industry outlook is expected to remain buoyant, reinforced by: 1) increase in capacity of 24% from local carriers and additional 31% from foreign carriers to leverage on 30-day visa-free travels for China, India and several countries in the gulf; 2) higher retail spending which increased to RM304 per ticket in 3Q23 versus RM290 in 2Q23 and RM230 in 3Q19; and 3) normalisation in rental and royalties without discounts given to tenants upon full recovery in international passenger movements next year.

Valuation

• Rolling forward the valuation base year to 2024 and coupled with earnings upgrade, we raise MAHB FCFE valuation to RM7.85 (from RM7.50/share) based on a discount rate of 14%. We upgrade MAHB to Hold from sell.

Source: TA Research - 30 Nov 2023