Malaysian Airports Holdings Berhad’s (MAHB) passenger jumped 53% year-on-year (YoY) driven by the rebound in air travel for the nine months of 2023 (9MCY23), according to Kenanga Investment Bank Berhad (Kenanga IB).
Its analyst Raymond Choo says that Kenanga IB expects the recovery of business and leisure air travel to continue throughout CY23.
“On the flip side, MAVCOM’s recent proposal to peg airport tariffs to the Consumer Price Index (CPI) limits MAHB’s earnings upside.”
Thus, Choo said the research house keeps its earnings forecasts, TP of RM7.00 and MARKET PERFORM call, which is based on 22x FY24F EPS at a 40% discount to its closest peer Airport of Thailand due to its smaller market capitalisation as well as the fact that Thailand’s tourism revenue is 3 times larger than Malaysia’s.
There is no adjustment to TP based on ESG given a 3-star rating as appraised by Kenanga IB, added Choo.
The research house notes that MAHB system-wide passenger throughput met its expectation.
“9MCY23 AIRPORT’s 9MCY23 system-wide passenger throughput (including Istanbul SGIA) came in within our expectation. Total network of airports’ passenger traffic continued to gain traction in 9MCY23, recording 88m ( up by 53% YoY) which made up 73% of our full-year forecast of 122 million versus 84 million in 2022.
“As an indication that traffic recovery has continued to show buoyancy, 9MCY23 passenger movements reached 84% of 9MCY19 level.
“Specifically, international passenger throughput for 9MCY23 grew 106% or 85% of 9MCY19 level. Domestic passenger throughput continued to record a steady growth, reaching 85% of 9MCY19 level with 46.4m passengers, up by 24% YoY,” he says.
Choo notes that its Malaysia operation’s total passenger movements for 9MCY23 grew by 72% with international and domestic segments recording 27.7 million (more than 100% YoY) and and 32.9 million (up by 27% YoY) passengers, respectively.
“The recommencement of 45 airlines in 9MCY23 boosted airlines’ total seat capacity recovery of more than 75%.
“Similarly, Turkey operations, by MAHB’ fully owned Turkish asset Istanbul Sabiha Gökçen International Airport’s (Istanbul SGIA) traffic continued to exhibit positive momentum.
“Passenger movements for Istanbul’s SGIA continued to show resilience in 9MCY23, recording more than 3m passengers each month. It is also noteworthy that the 9MCY23 total passenger throughput for Istanbul SGIA exceeded 9MCY19’s by 5%.”
In terms of outlook, Choo says Kenanga IB expects business and leisure air travel to continue to recover throughout CY23 with activity poised to return to pre-pandemic levels in CY24.
“Tourist arrivals in Malaysia are expected to jump 60% to 16m in CY23 from an estimated 10m a year ago, to be strongly driven by Chinese tourists that historically make up for 12% of total tourist arrivals in Malaysia.
“In 2024, we project tourist arrivals to expand further by 24% to 20m, compared to the pre-pandemic level of 26m.”
This, Choo says should underpin growth in MAHB’s passenger throughput demand in 2023.
“We expect traffic trajectory to grow in subsequent months as airlines continue to re-activate more aircrafts to match increasing demand.
“Amplifying traffic growth trajectory is aircraft movements that are pointing towards increased medium and long-haul flights to Perth, Sydney and Auckland, Southeast Asia and South Asia destinations.
“KL International Airport saw the return of Kuwait Airways after a seven-year hiatus, while two other foreign carriers, KLM Royal Dutch Airlines and All Nippon Airways, will resume non-stop flight operations to Amsterdam and Tokyo, respectively, after temporarily ceasing operations due to the COVID-19 pandemic.
“In addition, Malaysia Airlines has increased its flight frequency to Tokyo from November 2022, meeting the surge in travel demand after Japan reopened its borders to international travellers,” it says, adding on the other hand AirAsia Group is focusing on its medium-haul operations and had increased its Malaysia AirAsia X flights to 44 times weekly across 10 routes from November 2022.
The research house says it like MAHB for being the dominant airport operator in Malaysia and one of the largest in Turkey, being a good proxy to the recovery of air travel and tourism locally, regionally and globally.
Aside from that, it also favours MAHB for its strong shareholders who have demonstrated unwavering support (including during the pandemic and a massive cash call in 2014).
“However, the recent proposal to peg airport tariffs to the CPI (despite operating cost rising at a much faster pace) could work against MAHB’s ability to generate enough cash flow for capex purposes, particularly for airport expansion and maintenance.
“While MAVCOM also proposes a mechanism for MAHB to recoup losses incurred during RP1 in RP2, we are concerned over its cash flow over the RP1 duration. The proposal could change, but they do significantly raise MAHB’s earnings risk over the medium term.”
Choo said the risks to Kenanga IB call include endemic and pandemic occurrences, deterring air travel, unfavourable terms for airport operations, and risks associated with overseas operations.
Meanwhile, RHB Investment Bank Bhd (RHB IB) also maintains a positive view of MAHB, at the back of high international passenger movements, which achieved their highest monthly recovery rate of 92.5%, defying September’s seasonal dips.
“Despite the aviation industry’s recent turbulence, we believe the impact towards airport operators are minimal, reaffirming our positive stance on MAHB.
“As we move closer to the year’s end, we anticipate a continued resurgence in both domestic and international tourism numbers, which will benefit MAHB, in our view,” it said.
The research house said even during a historically subdued month in September, MAHB’s passenger movements reached 10.3 million, comprising of 5 million internationally and 5 million domestically.
“The international passenger movements had a recovery rate of 92.5% vs Sep 2019’s rate of 90%, representing the highest monthly achievement in reaching pre-2019 levels,” he said.
RHB IB call agrees with Kenanga IB’s notes that Malaysia is poised for tourism recovery.
“Despite regional challenges posed by typhoon, international traffic in September (3.3 million) rebounded to reach 79.3% of 2019’s levels – the highest recovery rate for monthly traffic.
“Malaysia segment is poised for a robust 4Q23 tourism recovery, driven by airline service resumptions, the school holidays peak
travel season, and a stronger resurgence in outbound Chinese tourism,” it says.
On MAHB’s Istanbul SGIA operation, RHB IB also notes the recovery of passenger movements.
“Passenger movements for September recovered 106.5% to 3.4m, remaining above the 3m mark at the tail-end of the summer travel season.
“As Malaysia and Turkey’s 9M23 passenger traffic accounted for 65.6% and 73.5% of our FY23 estimates, we deem this as in line – we
expect a stronger recovery for Malaysia in 4Q23.”
Thus, the research house keeps BUY call at its DCF-derived MYR8.70 TP, with 20% upside. This is after 4% ESG discount and implies 7.5x 2023F EV/EBITDA.
“We still prefer MAHB within the transport sector, given that the stock’s current valuation of 5.29x is still undemanding vis-à-vis its pre-COVID-19 valuation of 8.1x,” the research house says.
Among the key risks, RHB IB adds are lower-than-expected passenger volumes and passenger service charges or PSCs, as well as higher-than-expected opex.
