After a difficult two and a half years, Maybank Investment Bank expects MAHB to break even in 4Q22 and is set for profitability going forward. Yet, the investment bank holds the opinion that further upside from higher-than-expected international passenger (pax) traffic for its Malaysian operations may not be forthcoming. Thus, it has maintained its earnings estimates and MYR7.31 DCF-based target price (TP). With less than 10% upside potential, the research house downgrades MAHB to HOLD.
Investors ought to HOLD MAHB until details of its new Operating Agreement (OA) are finalised.
FY22 ended well for MAHB, to break even in 4Q22?
FY22 Malaysian (MY)/Turkish (TR) pax traffic came in at 50%/87% of FY19 levels which were well within the research house’s expectations (i.e. 50%/89%). More importantly, the higher yielding FY22 MY/TR international pax traffic came in at 31%/110% of FY19 levels which were also in-line with its expectations (i.e. 30%/112%). Crucially, Dec 2022 MY international traffic continued to improve and hit 56% of Dec 2019 levels. With 4Q22 MY international traffic recovering 36% QoQ, we reiterate our view that MAHB will break even in 4Q22.
More upside may be limited as airlines rebuild fleets
In its research report on MAHB, it stated that “we are often asked if there is an upside to our FY24E MY int’l pax traffic forecasts but we gather that there will not be much.” AirAsia X, Malaysia Airlines and Batik Air Malaysia have whittled down their fleet size post-COVID and have no plans to aggressively rebuild them. Only MYAirline plans to aggressively grow its fleet size but to serve low-yielding domestic routes. Recall that the PSCs levied on domestic pax in Malaysia is 5-7x lower than that of international ones.
HOLD for potential new Operating Agreement
MAVCOM is due to release the second consultation paper that it is hoped that it will culminate in a new OA for MAHB soon. From the first consultation paper, the research house likes that due to several factors like, tariffs will be adjusted every year by the Consumer Price Index until 2025; MAVCOM is open to raising domestic PSCs and introducing transfer PSCs; the RAB model from 2026 to 2028 guarantees a certain return for capex invested. In our view, the new OA
ought to be long term earnings positive for MAHB.
Upside swing factors identified are, competition among domestic airlines – this will drive
passenger traffic growth; Policy changes – visa requirements relaxations and tourist friendly events will drive passenger traffic growth; regulated Asset Base framework – this guarantees a
certain return for every MYR of capex invested.
Meanwhile, downside risks identified are, exogenous events – SARS, MH370, MH17, AK8501, political unrest in Turkey and COVID-19 negatively impacted passenger traffic growth; Failure to meet KPIs – Marginal cost support sum (MARCS) contingent on service levels & productivity KPIs; Development capex – Greenfield/expansion capex may be invested without guarantees in returns.
