• D/G to NEUTRAL from Buy, new MYR11 TP (from MYR9.67), 5% upside. Malaysia Airport’s 1H24 performance surpassed our estimates but missed Street’s, mainly due to lower-than-expected tax expenses. Our TP matches the offer price of MYR11, which is higher than our forecasted fair value. Hence, we advise investors to accept the privatisation offer. This report marks the transfer of coverage to Syahril Hanafiah.

• Results review. 2Q24 revenue of MYR1.4bn (+2% QoQ, +12% YoY) was driven by growth across all business segments, mainly the airport operations – aeronautical revenue rose 3% QoQ and 9% YoY, and non-aeronautical increased 2% QoQ and 18% YoY). This resulted in 1H24 revenue rising MYR2.7bn (+21% YoY). The uptick is in line with the ongoing traffic recovery, which saw a higher international passenger mix, resulting in higher passenger service charge and retail spending. Consequently, 1H24 core earnings came in at MYR382m, at 54% and 47% of our and consensus’ estimates. This was due to a MYR60m deferred tax income as a result of rebates provided to tenants during the pandemic. Excluding this, 1H24 earnings were largely in line with our FY24 forecasts.

• Privatisation deal. The offeror of the deal – a consortium led by Khazanah and the Employees Provident Fund (EPF) – recently received approval from the Turkish Competition Authority for the transaction. With two approvals already received from Saudi Arabia’s General Authority for Competition and the Egyptian Competition Authority, the offeror is left with a last pre- condition, which is the approval of the Malaysian Aviation Commission (MAVCOM). MAVCOM, which sought public feedback on the deal until 23 Aug, has until 15 Nov to provide its make-or-break decision. We are cognisant of public opposition to the deal due to Blackrock Inc's investment ties to Israel, which contradicts Malaysia's support for Palestine. However, Prime Minister Anwar Ibrahim clarified that Blackrock will not manage New York-based Global Infrastructure Partners (one of the consortium partners) in this deal. We note that negative sentiment has subsided, and major setbacks are unlikely. Hence the last pre-condition will likely be fulfilled.

• Outlook. We think Malaysia’s tourism sector is on track to achieve a full recovery, in line with our current FY24 passenger forecasts of 105.9m vs 2019’s 105.2m. This is supported by favourable policies such as visa waivers as well as more swift immigration processing (eGate access).

• We revise FY24F earnings by 13% after imputing a lower effective tax rate while FY25-26F earnings are maintained. Considering the privatisation offer price of MYR11 exceeds our intrinsic fair value of MYR9.70, we recommend investors accept the offer. Our TP is raised to MYR11, which is the offer price.

Source: RHB Research - 3 Sep 2024