KUALA LUMPUR (Jan 4): Air travel is expected to recover, albeit at a gradual pace starting from the second quarter of this year (2Q22), said Kenanga Research.

“Although availability of vaccines has renewed optimism for air travel returning to normal sooner than expected, economy re-opening is facing doubts with the global infection curve on the rise again as the Omicron variant has become the main coronavirus strain,” its Senior Analyst Raymond Choo Ping Khoon wrote in a note on Tuesday (Jan 4).

This after Choo said financial results of Malaysia Airports Holdings Bhd (MAHB) came in within expectations, but AirAsia Group Bhd came in below in its nine-month financial year ended Sept 30, 2021 (9MFY21).

He noted that MAHB’s 9MFY21 revenue fell 30% in tandem with lower aeronautical and non-aeronautical segments.

“Passenger traffic for the Malaysia operation contracted by 83% due to lower international and domestic to four million passengers. However, Turkey operation showed signs toward normalisation as passenger traffic rose 43% to 17.9 million.

“[In addition], 9MFY21 losses widened to RM630 million compared to RM431 million in 9MFY20 due to wider losses in Malaysia operation,” he said.

However, Choo said AirAsia’s 9MFY21 losses narrowed due to absence of fuel hedge swap losses.

Meanwhile, he saw the yet-to-be signed operating agreement (OA) with the government to be a rerating impetus for MAHB. He reiterated an “outperform” call on the stock, with a target price (TP) of RM7 based on 23 times FY22 earnings per share.

“Recall that on April 12, 2019, MAHB announced that the government had approved the extension of the airport operator’s concession period to operate 39 airports in Malaysia, from 2034 to 2069.

“The new OA with the government following the extension of the concession (yet to be signed) will pave the way for the stock to be re-rated.

“We believe the new OA will be investor-friendly, and create a sustainable long-term development path for MAHB which has been hit by Covid-19 in terms of passenger traffic growth both in Malaysia and Turkey,” he said.

Choo added that although ramp-up of vaccinations in Southeast Asia have lifted hopes for domestic travel recovery, international travel is likely to remain very modest, with the global infection curve on the rise again over the next three to six months.

Hence, Kenanga Research has maintained its “underperform” call on AirAsia with a TP of 70 sen.

For stock picks, Kenanga Research likes MAHB for being a monopolistic airport operator in the country and premised on gradual air travel recovery.