Kenanga Research maintains a NEUTRAL view on the Aviation sector, but expects to continue to recover throughout CY24.
In its Sector Update, it said that the recovery is consistent with Tourism Malaysia’s projection of tourist arrivals to return to pre-pandemic levels of 27 million in Malaysia, up 35% from 20 million in CY23.
“We see a sustained recovery in passenger throughput at Malaysia Airports Holdings Bhd (MAHB) (MP; TP: RM7.00) and passengers carried at Capital A Bhd (Air Asia) (MP; TP: RM0.84).
“However, each player has its own unique set of issues,” it said.
On one hand, for MAHB, tariff hike pegged to consumer price index (CPI) recently proposed by Malaysia Aviation Commission (MAVCOM) may not be sufficient for the former to generate enough cash flows for capex purposes, particularly for airport expansion and maintenance, Kenanga said.
“While MAVCOM also proposes a mechanism for MAHB to recoup losses incurred during Regulatory Period 1 (RP1) in Regulatory Period 2 (RP2), we are concerned over MAHB’s cash flows over RP1.”
On the other hand, the clock is ticking on a more viable and holistic regularisation plan to lift Capital A out of its Practice Note 17 (PN17) status, it said.
“The group plans to divest its aviation group to AirAsia X in exchange for shares which will subsequently be distributed back to its shareholders.
“While we continue to like Capital A for being a beneficiary of the recovery in air travel as the pandemic comes to an end, we are mindful of it still being under the PN17 status,” it said.
Kenanga said the key driver for the projected recovery of tourist arrivals (to increase by 35%) in CY24 are Chinese tourists that had historically contributed to an estimated 12% of total tourist arrivals in Malaysia.
“Furthermore, tourist arrivals is expected to be boosted by the 30-day visa-free regime for Chinese and Indian visitors to Malaysia
starting from Dec 1, 2023 and China allowing Malaysian inbound visitors 15 visa-free days between Dec 1, 2023 to Nov 30, 2024.
“This should underpin growth in MAHB’s passenger throughput and Capital A’s passenger demand in CY24,” it said.
The research house projects further volume improvement for MAHB and Capital A in CY24.
For MAHB, it projects the group’s system-wide passenger throughput to rise by 7% to 131 million in CY24.
“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 i.e. 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. AirAsia Group meanwhile is focusing on its medium-haul operations by increasing its Malaysia AirAsia X flights to 44 weekly across 10 routes from November 2022.”
Kenanga also sees similar trend for Capital A’s passenger demand in CY24, paving the way for its system-wide revenue seat km (RPK) to
grow 20% to an estimated 70 billion in CY24, after recovering by an estimated 24 billion to 58 billion in FY23 based on its forecasts.
“The group reiterated that the passenger throughput recovery is gaining traction. It is targeting to reactivate 187 aircrafts by 4QFY23 with 161 aircrafts available for operation, and its operating capacity to reach 74% of pre-COVID level, leveraging the high travel season and
the newly established visa-free travel between China and Malaysia starting 1 Dec 2023.”
As both of the group under Kenanga’s coverage, MAHB and Capital have stumbling blocks ahead, the research house doesn’t have any top pick for the sector.
