KUALA LUMPUR (July 21): Malaysia Airports Holdings Bhd (MAHB) may need to raise more borrowings to repay debts due this year, according to CGS-CIMB Research.

“MAHB’s Malaysia business had a cash balance of RM1 billion as at March 31, 2022, which was topped up by RM800 million sukuk raised in April 2022 to RM1.8 billion.

“After deducting planned capital expenditure of RM400 million, the cash balance may be insufficient to repay RM1.5 billion of sukuk due Dec 16, 2022 if [its] Malaysia [business] fails to generate positive operating cash flows for the rest of the year,” it said in a note on Wednesday (July 20).

“[However], we have confidence that MAHB will be able to successfully raise the necessary debt refinancing; it continues to reiterate that an equity rights issue is not on the table,” said CGS-CIMB Research.

According to the research firm, Istanbul Sabiha Gokcen International Airport (ISG) had a cash balance of €266 million (about RM1.2 billion) as of March 31, 2022, and with annual operating cash flow of more than €200 million starting this year, it will be able to repay €375 million in bank borrowings due by 2025 and €383 million in concession fees by 2025.

But, the uncertainty lies in the terms of the payment of €230 million in concession fees deferred from 2021-2022, on whether the Turkish government will insist on full payment or give a partial waiver, as well as the timing of that payment, said CGS-CIMB Research.

“We forecast that ISG will have sufficient funds to repay €230 million in full in 2025, but that would leave ISG with a rather low cash balance and make it susceptible to unexpected economic shocks,” it added.

CGS-CIMB Research reiterated its "hold" call on MAHB with a lower target price of RM6.76, from RM6.93 previously, as it trimmed the country’s traffic forecasts for 2022, partially offset by higher ISG international traffic.

It said Malaysia’s international passengers have so far lagged the domestic pick-up, slowing down earnings recovery as depreciation is calculated based on total passengers.

“While we forecast Malaysia’s FY22 international passengers to rise by 14.63 million year-on-year, domestic traffic may rise by an even greater 29.65 million passengers, leading to a dilution in the average revenue per passenger.

“Regardless, depreciation expense will rise proportionately with the increase in total passenger traffic.

“These two factors combine to constrain MAHB’s earnings recovery in FY22 as we forecast depreciation to rise as a percentage of revenue,” said CGS-CIMB Research.

At the time of writing on Thursday (July 21), MAHB’s share price had risen eight sen or 1.29% at RM6.29 with some 61,200 shares traded.

At RM6.29, the group was valued at RM10.44 billion.