KUALA LUMPUR (Oct 4): Kenanga IB Research has downgraded the Aviation sector to “Neutral” (from Overweight) and said while it likes Malaysia Airports Holdings Bhd (MAHB) as an attractive play on the propensity for air travel in the region due to rising per capita income, the stock has risen 32% over a 52-week period and is currently trading at rich valuations of 26x on FY19E EPS and 22x on FY20E EPS.

In a sector update today, the research house however said there is potential earning or rating upgrade catalysts upon the release of the final consultation paper on the implementation of Regulated Asset Base (RAB) in early October.

It said that separately, AirAsia is expected to face near-term tough operating environment of intense competition, higher operating costs due to the sale-and-lease-back of aircrafts and sustained high jet fuel price over the medium term.

“AirAsia Group Bhd, our target price (TP) is RM1.70 based on 10x FY20E EPS, at a discount to average forward PER of 11x of global peers to reflect AirAsia’s relatively smaller market capitalisation.

“TP for MAHB is RM8.70 based on 22x FY20E EPS, which is at a 20% discount to regional peers average to reflect MAHB’s relatively smaller market capitalisation,” it said.