Robust Growth in International Travels

Malaysia Airports (MAHB) recorded 6.6mn passenger movements (pax) for Malaysia operations in November, down 2.9% MoM but up 27.4% YoY (Figure 1). This would likely be the second lowest pax volume in 2023 as November is usually the off-peak travelling season. Having said that, the growth in international traffic remained robust (0.4% MoM, +51.8% YoY) in Nov-23, offsetting the seasonal weakness in domestic traffic (-6.3% MoM, +8.8% YoY).

For 11M23, the growth in cumulative passenger movements in Malaysia moderated to 61.2% from 65.6% a month ago, to 74.1mn. It accounted for 89.1% of our full-year forecast (i.e.: 90mn) and we attribute this lower-thanexpected volume to lower-than-estimated flight capacity for 2023. According to announcement, despite the off-peak season, the continuous traffic growth in November was partly due to introduction of four new services from KLIA to the UAE by Batik Air Malaysia, Raja Sansi, Thiruvananthapuram and Malaysia Airlines. Also, Firefly commenced five weekly flights to Don Mueang from Penang International Airport also contributed to the growth.

Figure 2 below shows Malaysia domestic volume contracted by 6.3% MoM to 3.2mn, slipping to 75% of 2019 pre-pandemic levels. We believe the weakness was due to increased allocation of seat capacity to international sector for higher fare and better yield by airline companies. According to management, the average load factor for the domestic sector in November recorded above 80% for the second consecutive month, with the airline’s seat capacity offered at 66% of pre-pandemic levels.

For the international sector, the total passenger movements rose to 3.4mn (+0.4%MoM, +51.8% YoY) in November. Comparing this with the prepandemic period, it showed a steady recovery to 78% of 2019 levels (Figure 3). Zooming in closely, the growth was mainly driven by the non-Asean sector (Figure 4).

ISG’s Nov Traffic Seasonally Slowed Further

In Istanbul, ISG recorded 3.0mn passenger movements in Nov-23, representing a MoM contraction of 10.4% (+12.4% YoY). This was underpinned by weaker international (-12.5% MoM) and domestic traffics (-8.1% MoM) seasonally during the winter. Cumulatively, ISG’s 11M23 total passenger movements grew 21.0% to 34.4mn on the back of decent growth in both international (25.7%) and domestic (16.2%) traffic.

Outlook

As far as share price performance is concerned, MAHB has rallied 12.8% in 2023, meeting our stock selection goal for picking MAHB as one of 2023 top picks. Throughout 2023, EPF has reduced its stake to 6.0% in end-Dec from 15.7% in early-23 while KWAP has raised its stake marginally to 7.2% in endDec from 6.3% early this year. In terms of foreign shareholding, the group’s total foreign shareholding has increased from 21.0% in Jan to 26.4% as at Sep- 23.

For 2024, we have selected MAHB again as one of our top picks as we believe the company will benefit from rising travel demand to China and Malaysia, thanks to the establishments of visa-free entry effective 1 December 2023. In addition, we believe airline companies would continue adding capacity to the market, thereby reducing the airfare further, which would bode well for MAHB.

Forecast & Valuation

No change to our FY23-35 earnings projections. However, we raise MAHB’s DCF-valuation to RM8.20/share (from RM7.85 previously) after revising the CAPM rate to 14.4% (from 14.9%) through updating the stock beta. Maintain Buy

Source: TA Research - 2 Jan 2024