Robust Growth in International Travels

Malaysia Airports (MAHB) recorded 6.8mn passenger movements for Malaysia operations in October, down 1.5% MoM but up 25.5% YoY (Figure 1). The stable pax figures were supported by robust growth in international traffic (3.5% MoM, +60.8% YoY) as well as domestic traffic (-6.0% MoM, +3.0% YoY), considering the high base effect as the Deepavali festival fell in October (vs Nov in 2023), along with the general election campaigns late last year.

For 10M23, the growth in cumulative passenger movements in Malaysia moderated to 65.6% from 71.8% a month ago, to 67.4mn. It accounted for 74.9% of our full-year forecast (i.e.: 90mn), which we consider as within expectation as 2023 passenger growth is expected to be back-end loaded. According to announcement, the resilient growth in passenger movements was in tandem with the gradual increase in airline seat capacity, which surged 3.3% MoM. In additional, the average load factor increased 0.2%-pts with stable demand from Northeast Asia, South Asia and Southeast Asia, where passenger movements grew 2.2%-12.2% MoM.

Figure 2 below shows the growth in monthly domestic volume moderated to 3.0% to 3.4mn due to the high base effect as mentioned above. It represents 80% of 2019 pre-pandemic levels. Moving forward, we expect the growth to slow as airlines are allocating more capacities to international destinations for higher yield.

For the international segment, the total passenger movements rose to 3.4mn (+3.5%MoM, +60.8% YoY) in October. Comparing this with the pre-pandemic period, it showed a recovery to 79% of 2019 levels (Figure 3). Zooming in closely, the growth was mainly driven by the non-Asean sector (Figure 4).

ISG’s Oct Traffic Seasonally Slowed

In Istanbul, ISG recorded 3.3mn passenger movements in Oct-23, representing a MoM contraction of 2.1% (+14.3% YoY). This was underpinned by seasonally weaker international (-0.6% MoM) and domestic traffics (-3.6% YoY) during the winter season. Cumulatively, ISG’s 10M23 total passenger movements grew 21.8% to 31.4mn and this was within our expectations, at 92% of our full-year forecast.

Outlook

Expectations are running high on travel demand to and fro China and Malaysia, thanks to the establishments of visa-free entry effective 1 December 2023, which will exempt visa requirements for Malaysian tourists (15 days) and Chinese tourists (30 days). So, MAHB’s traffic data for Dec-23 to 1Q24 would serve as important indicators of the return of Chinese visitors to Malaysia. In addition, we believe Malaysia’s tourism industry is hopeful for China’s president Xi Jinping visit, which may bring more excitements to Malaysia’s travel and hospitality industry. Note that the government has set the target of attracting 5mn Chinese tourists on a yearly basis after the visa-free regime. This is a tall order, in our opinion, considering the fact that only 3.1mn tourists visited Malaysia in 2019.

Forecast & Valuation

No change to our FY23-35 earnings projections. However, we upgrade MAHB to Buy (from hold) as the recent selling pressure appears overdone. We maintain MAHB DCF-valuation at RM7.85/share based on unchanged discount rate of 12%.

Source: TA Research - 5 Dec 2023