Thursday 28 Mar 2024
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This article first appeared in The Edge Financial Daily on April 14, 2020

Malaysia Airports Holdings Bhd
(April 13, RM4.42)
Maintain outperform with an unchanged target price (TP) of RM5.70:
Malaysia Airports Holdings Bhd’s (MAHB) total passengers in the first quarter of financial year 2020 (1QFY20) declined 24% to 26 million or 22% of our full-year forecast.

We consider the passenger numbers to be in line with our full-year forecast as we expect a much stronger number in the second half of FY20 (2HFY20). While a prolonged Covid-19 pandemic could impact MAHB’s earnings, the experience from the severe acute respiratory syndrome suggests that passenger volume will see a recovery once the pandemic subsides.

Generally, the weak passenger movements across the board were due to Covid-19 leading to the imposition of the movement control order effective March 18 in Malaysia and the suspension of international flights for Turkey effective March 27.

The Istanbul Sabiha Gökçen International Airport is currently closed for operations from March 28 to April 30. Year-on-year, MAHB’s international and domestic sectors declined by 28% and 20% respectively in 1QFY20.

We expect MAHB to be hit by Covid-19 in terms of passenger traffic growth due to travel restrictions and potential tariff rebates or discounts for retail rentals. A case in point: AirAsia has suspended all of its international and domestic flights in Malaysia from March 29 to April 25.

However, we understand that MAHB is undergoing a cost optimisation programme, including energy conservation on its premises, closure of underutilised areas of airports, as well as postponement of advertising and promotional events. MAHB is still talking to the government in terms of the mechanism of the recently announced rebates off rentals on premises at airports as well as landing and parking charges.

We highlight that the management has not ruled out the regulated asset base (RAB) framework and discussions with the relevant authorities are still ongoing. For illustration purposes, assuming a 20% rebate off both rentals and landing and parking charges over a six-month period, a back-of-the-envelope calculation suggests a negative impact of 20% on our net profit estimate for FY20 (FY20E).

We reiterate our “outperform” call on MAHB and make no change to our FY20 earnings forecast which is conservatively lower than the consensus. Our TP is RM5.70, based on 19 times FY21E earnings per share (-1.0 standard deviation below the historical forward mean).

Year to date, the stock is down 42%. We believe the recent selldown presents an opportunity to buy into MAHB.

Risks to our call include: i) a prolonged Covid-19 disruption beyond mid-year, resulting in lower-than-expected passenger volume; and ii) weaker-than-expected weighted average cost of capital from the RAB. — Kenanga Research, April 13

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