Review

• Stripping out the fair value gain (RM102mn), writeback of impairment on receivables (RM25.9mn), and other exceptional items, Malaysia Airports’ (MAHB) FY23 core profit of RM493.3mn was within our expectation but above consensus forecast. For this quarter, the company declared a final dividend of 10.8sen/share, which came in higher than our expected 8sen/share.

• MAHB remained in the black for fourth consecutive quarter, indicating the worst is over for the company. FY23 adj. PBT has turned around to RM456.3mn underpinned by revenue growth of 57.2%. The decent results can be attributed to higher aeronautical revenue (Figure 1) and non-aeronautical revenue (Figure 2), supported by higher passenger movements of 55.2% in Malaysia and 20.5% in Türkiye.

• On QoQ basis, 4Q23 adj PBT declined by 42.7% despite 7.5% jump in revenue. The PBT margin contracted by 5.2%-pts to 5.9% and this was mainly due to substantial increase in staff cost (+44%).

Impact

• No change to our FY24-25 earnings projections. However, we raise our dividend projections to 15-16sen (from 11-12sen) based on a higher payout ratio of 40% (vs 30% previously).

Briefing highlights

• The market has reacted positively to the news about the consortium formed by Khazanah, EPF and Global Infrastructure Partners (GIP) to own and operate MAHB. Although we do not get any confirmation on the news, we believe the privatisation of MAHB has its merits as it can solidify Malaysia’s market position to rival Singapore Changi Airport and Airport of Thailand as a transit hub. As such, we do not expect major stumbling blocks to the privatisation, if it happens, provided the consortium does not undertake major layoffs.

• As far as new operating agreement and airport tax are concerned, management indicated that all principal terms have been agreed, pending final approval from the government.

• With regards to Penang Airport expansion, the total capex is estimated to be RM1.4bn. Construction is expected to begin in 2H24, which would take 3-4 years to complete. The capital recovery mechanisms will involve the clawback of user fee, i.e., government’s entitlement on MAHB’s revenue, for a period of time as well as other mechanisms too. Besides that, there will be flood mitigation infrastructures costing RM150mn where funding would likely be supported by the federal and state governments.

• 2024 earnings growth is expected to remain strong on the back of: 1) increase in airline companies to 79 airlines from 63 in 2023, 2) visa-free travels for China, India and several countries in the gulf which would stimulate travel demand; 3) higher retail spending, which is expected to grow by additional RM100/pax to RM312/pax; and 4) normalisation in rental and royalties without discounts given to tenants upon full recovery in international passenger movements next year.

Valuation

• The promising 2024 outlook and potential privatisation deal from major shareholders have prompted us to revise the CAPM rate lower by approximately 100bps to 13.3%, deriving a new target price of RM9.18/share. However, given the limited upside of 8.3% after the recent price rally, we downgrade MAHB to Hold from buy.

Source: TA Research - 1 Mar 2024