After a horrible 3 years, Maybank IB believes that things are finally looking up for the Malaysian aviation industry. The house expects passenger traffic to continue recovering, jet fuel prices to ease, and airfares to remain high. Moreover, the huge Chinese outbound tourism market reopened.
The research house has a strong call on MAHB/CAPITAL to financially break even in 4Q22/3Q23, with revised TP on MAHB to MYR7.31 (-1%) and Capital A to MYR0.90 (+7%). The top BUY pick is Capital A due to its nearly 30% upside potential.
This time in 2022, the Malaysian aviation industry was struggling to regain its footing after being hit hard by the Delta wave. Not long after, the industry was again hit by:- the Omicron wave; weakening MYR against the USD; and skyrocketing jet fuel prices. It did seem like there was no end to the industry’s woes. But as the Omicron variant turned out to be a lot less lethal than the Delta variant, the MYR recovered and jet fuel prices eased; passenger traffic recovered even though airfares surged.
For 2033, the aviation sector is seen on a positive note expecting passenger traffic to continue recovering as more aircraft are returned to service; jet fuel prices to ease due to lower brent crude oil prices and narrowing jet fuel – brent crude oil crack spread; and still high airfares due to fewer aircraft operated by airlines. Maybank expects MAHB to have broken even in 4Q22 and Capital A to break even in 3Q23. Key events to watch out for this year are MAHB’s new Operating Agreement and Capital A lifting its PN17 designation.
2023: China to add fuel to the recovery fire
China reopened its borders after having shut itself off from the world for nearly 3 years. With it comes the expectation that prized Chinese visitors will return to Malaysia. However, the market does not expect many to return this year due to:- (i) China battling its Omicron wave; (ii) the requirement for negative PCR tests before returning to China; and (iii) not all aircraft being returned to service yet. That said, more will return in 2024 albeit at 2/3 of 2019 levels. There could be an upside to this figure if Malaysian airlines rebuild their fleets.
This time last year, Malaysia was only emerging from the Delta wave that claimed many lives. For MAHB, Malaysian Jan 2022 passenger (pax) traffic only hit 33% of pre-COVID levels (domestic: 63%, international: 6%). With the arrival of the Omicron variant into Malaysia that month, one would be forgiven for being downcast on the Malaysian aviation sector’s prospects. But as the Omicron variant was discovered to be less lethal than the Delta variant, many ASEAN countries, including Malaysia, chose to reopen their international borders in Apr 2022.
Fast forward to Nov 2022, the situation could not have been more different relative to a year ago. MAHB Malaysian pax traffic hit 60% of pre-COVID levels (domestic: 69%, international: 51%) (Fig. 1). To be sure, MAHB Turkish pax traffic
fared better by hitting a peak of 96% of pre-COVID levels in May 2022 (domestic: 79%, international: 124%) before settling at 85%-95% of pre-COVID levels thereafter (Fig. 2). Regulatory wise, Malaysian Aviation Commission (MAVCOM) released its first consultation paper that will guide how MAHB’s new Operating Agreement (OA) with the Government of Malaysia (GOM) will be drafted.
