This article first appeared in The Edge Financial Daily on July 12, 2019
Malaysia Airports Holdings Bhd
(July 11, RM8.80)
Maintain sell with an unchanged target price (TP) of RM8.47: Malaysia Airports Holdings Bhd’s (MAHB) Malaysian operations recorded passenger movements of nine million in June 2019, representing month-on-month and year-on-year (y-o-y) growth of 14.7% and 6.7% respectively. The decent y-o-y growth in June was derived from both domestic and international sectors, which grew 10% and 3.4% respectively.
The encouraging June performance was spurred by Hari Raya Aidilfitri festivity which coincided with the school break. According to announcements, overall aircraft movements increased by 5.6%. International and domestic aircraft movements grew by 0.9% and 9% y-o-y respectively. The average load factor decreased by one percentage point y-o-y to 75.8%.
For the first half of 2019 (1H19), total passenger movements increased 4.5% y-o-y, with higher growth seen for the domestic segment (8%) versus the international segment (1.4%). The weaker performance of the international sector was partly due to a strong base effect and also the tragedies of the Lion Air crash and tsunami in Indonesia in late-2018. Overall, we consider 1H19 growth to be in line with our forecast of 3% for 2019 (management’s target: 4.9%), with a view that a slowing global economy will dampen traffic growth in 2H19.
The Istanbul Sabiha Gokcen International Airport continued to see the same traffic trends, where international traffic rose significantly higher while the domestic sector remained subdued. This phenomenon was due to the currency crisis in Turkey, which boosted international movements at the expense of domestic movements. For June, the international sector recorded a 30.9% y-o-y growth, while the domestic sector recorded a 1.3% y-o-y contraction. For 1H19, total passenger movements surged 3.4% with a 20.8% growth support from the international sector that offset a 4.9% contraction in the domestic sector.
Meanwhile, as the fear of dropping out of the list of FBM KLCI constituents disappeared, MAHB’s share price surged further to a nine-month high since October 2018, to its last closing of RM8.80. We would like to specifically point out that since the Malaysian Aviation Commission released the second consultation paper on the new passenger service charge (PSC) framework, MAHB’s share price has jumped 11%. This indicates that the market has started pricing in the impact of the new PSC on MAHB’s bottom line, where the final PSC outcome will only be announced in October 2019. Although the new framework sounds positive to us from the risk perspective, where MAHB will likely be shielded from any unforeseen events, we would rather wait for the final outcome to assess the long-term impact on profitability.
As such, we maintain our financial year 2019 (FY19) to FY21 earnings projections for MAHB. Our TP is maintained at RM8.47, implying an FY20 price-earnings ratio of 23 times. We maintain “sell” on MAHB. — TA Securities, July 11