This article first appeared in The Edge Financial Daily on January 14, 2020
Aviation sector
Maintain positive: We opined that Visit Malaysia Year 2020 (VMY2020) would be a major catalyst to passenger traffic growth this year, with RM1.1 billion allocated by the Malaysian government for the tourism ministry including RM960 million to drive awareness and promotion programmes.
Further, the Malaysian government’s initiative for a 15-day visa free travel for tourists from China and India in 2020 will further support the overall passenger traffic growth as these travellers made up more than 20% of passengers in 2019.
In previous Visit Malaysia Years, the international traffic growth was commendable, and the international traffic is likely to get a similar boost from VMY2020 activities. Therefore, we strongly believe Malaysia Airports Holdings Bhd’s passenger numbers for Malaysian operations to reach 110.8 million passengers in 2020, with a growth of 5.4%.
Our top pick for the aviation sector is AirAsia Group Bhd with a “buy” call and a target price of RM2.04. We still like AirAsia as it continues enhancing its cost structure, along with its efforts of rationalising revenue and cost via digitalisation.
Our positive outlook for
AirAsia Group also hinges on its more prudent hedging policy, stable operations with added capacity, and continuous improvements to drive its non-airline ancillary business.
Meanwhile, adopting the Malaysian Financial Reporting Standard 16 will be a headwind in future as most of AirAsia Group’s fleet are leased. Nonetheless, AirAsia Group is expected to gain from a lower interest beyond the fifth year of the lease term.
We opined that passenger growth in Malaysia to remain intact despite the departure levies took effect in September 2019, as the levies gazetted are lower than those of regional peers such as Thailand and Hong Kong. — MIDF Research, Jan 13