Review

• Malaysia Airports’ (MAHB) 1Q24 core profit of RM190.8mn came in within expectation at 26% of our full-year forecast and 25% of consensus estimates.

• MAHB managed to sustain its profitability for 5 straight quarters, indicating the worst is over for the company. 1Q24 adj. PBT rose significantly by 161% to RM215.5mn on the back of higher revenue and margin expansion. In specific, 1Q24 revenue increased 30.6% underpinned by 50.3% rise in aeronautical (Figure 1) and 37.7% rise in non-aeronautical revenue (Figure 2) with higher passenger movements in Malaysia and Türkiye. The PBT margin expanded by 8%-pts due to higher operating efficiency.

• On QoQ basis, 1Q24 core profit grew 29.7% despite lower revenue, down 1.5%. This can be attributed to decline in operating costs including direct labour (-26%), staff cost (-37%) and maintenance cost (-33.8%).

Impact

• No change to our FY24-26 earnings projections. Briefing highlights

• Traffic continues to recover to pre-pandemic levels led by a strong recovery in the Malaysia-China sector. According to management, the traffic in this particular sector has recovered to 77.7% of pre-pandemic levels in 1Q24, thanks to visa relaxation in both countries. The recovery will be further strengthened by the recent extension of visa-free requirement until end-2025.

• For Penang Airport expansion and renovation, the total capex is estimated to be RM1.55bn. Construction is expected to begin in 2H24 which is targeted for completion by 1H28. Of the total RM1.55bn capex, MAHB is only responsible for RM700mn (RM850 if include interest) and the rest will be financed by the state government (RM150mn) and Federal government via reduction in user fee (i.e. govt’s share of profit).

• Management reserved its comments on the general offer at RM11/share, where all the pre-conditions (see report dated 16 May 2024) have not been met thus no valid offer is made at this juncture. Note that the group has up to 15 November 2024 to fulfil these conditions.

Valuation

• While the general offer is still ongoing, we keep our target price of RM11.00/share unchanged and advise the shareholders to accept the offer.

Source: TA Research - 31 May 2024