Investment Highlights

• We upgrade Malaysia Airports Holdings (MAHB) to BUY from HOLD with a higher fair value (FV) of RM7.45/share (from RM6.80/share), pegged to FY23F PE of 25x (from 22x). Our target PE is based on 1 standard deviation above its 2-year FY18–FY19 pre-pandemic average of 22x, underpinned by a positive long-term outlook from multiple growth strategies on the cards.

• Our FV also incorporates a 3% premium to account for an unchanged 4-star ESG rating (Exhibit 6), underpinned by the group’s initiatives to increase the usage of renewable energy.

• We now cut FY22F core net loss by 32% as MAHB’s 9MFY22 core net loss (CNL) of RM181mil was better than expectations, coming in at 86% of our earlier FY22F loss and 96% of street’s. We also fine-tuned FY23F-FY24F earnings to account for slightly higher depreciation/amortisation charges, maintenance expenses and finance costs.

• YoY, MAHB’s 9MFY22 CNL (excluding RM10mil net writeback of impairment on receivables and RM1mil write-off of inventories) reduced by 72% in tandem with an 89% surge in revenue to RM2.1bil on the back of higher passenger volume amid a recovery in global air travel demand. It is worth noting that passenger movements leapt 2.8x YoY to 58mil passengers, which represent 56% of pre-pandemic traffic.

• QoQ, group revenue rose by 25% to RM864mil, driven by higher passenger traffic. On top of higher revenue, 3QFY22 earnings subsequently returned to the black with a core net profit of RM8mil (after taking out RM16mil net allowance of impairment on receivables and RM1mil allowance for inventories). Note that the stronger quarterly earnings was further supported by lower operating expenses with core costs per passenger of RM15.8/pax in 3QFY22 compared to RM18.6/pax in 2QFY22.

• We expect MAHB to sustain its profitability over the upcoming quarters, supported by higher passenger volumes and leaner cost structures. Moreover, we also anticipate an exceptionally stronger QoQ improvement in 4QFY22 earnings in Malaysian operations due to seasonally higher passenger traffic as well as a favourable recovery in the international-domestic passenger mix.

• The improving prospects in Malaysian operations are demonstrated by the 8.8x YoY rebound in 9MFY22 passenger traffic to 35.2mil, which translates to a recovery to 45% of pre Covid stats. Meanwhile, daily international passenger movements across airports in Malaysia averaged 58k in 3QFY22, which represent a 40% recovery from 3QFY19.

• Likewise, operations in Istanbul Sabiha Gokcen International Airport’s (SGIA) rebounded with passenger traffic reaching close to 85% of the 2019 level in 9MFY22.

• On the other hand, the group’s long-term earnings could be enhanced further with the development of KLIA Aeropolis with a total landbank of 8,537 acres. Recall that the group has been granted development rights by the government to plan, design, develop and construct the KLIA Aeropolis land, which would comprise multiple commercial and industrial zones. While concrete details have yet to be formalised, we are positive on KLIA Aeropolis’ growth prospects, which lays the foundation for substantive recurring income from sub-leasing these lands for future developments.

• MAHB’s earnings outlook is gradually improving, premised on the recovery in air travel and tourism sectors as the pandemic comes under control with large-scale vaccination rollouts and international borders reopening globally. The stock currently trades at a compelling FY23F PE of 22x vs. the peak of 27x in its 2-year (FY18–FY19) pre-pandemic period.

Source: AmInvest Research - 30 Nov 2022