Analysts mixed on MAHB as aviation industry returns to near pre-pandemic level in 2023

KUALA LUMPUR (April 20): Research houses have mixed outlook on Malaysia Airports Holdings Bhd (MAHB), with recommended target prices between RM7.00 and RM7.35, after the group reported higher passenger traffic in March 2023 from a year ago.

MAHB said on Wednesday (April 19) that passenger traffic has doubled to 6.66 million in March 2023 from 3.04 million a year earlier while international passenger movements surged 604.7% year-on-year (y-o-y) to 2.96 million — the highest monthly volume recorded since March 2022 and 66.2% of 2019 levels.

Kenanga Research has maintained its “outperform” call on MAHB with a TP of RM7.00 based on 22 times financial year 2024 (FY2024) forecast earnings per share (EPS) at a 40% discount to its closest peer Airport of Thailand due to its smaller market capitalisation.

Analyst Raymond Choo Pin Khoon said business and leisure air travel will continue to recover for the year with activity to return to pre-pandemic levels in calendar year 2024 (CY2024), as airlines continue to reactivate more aircraft in the coming months.

“A key driver is Chinese tourists that historically contributed to an estimated 12% of total tourist arrivals in Malaysia,” said Choo.

“In 2024, we project tourist arrivals to jump further by 24% to 20 million, compared to pre-pandemic level of 26 million.”

Choo also added that the recent consultation paper published by the Malaysian Aviation Commission (Mavcom) to raise airport tariffs based on the consumer price index (CPI) may lead to MAHB experiencing insufficient cash flow generation for capital expenditure (capex) purposes involving airport expansion and maintenance.

“While Mavcom also proposes a mechanism for MAHB to recoup losses incurred during the first regulatory period (RP1) in RP2, we are concerned over MAHB’s cash flows during RP1.

“While the proposals in the Mavcom consultation paper are not cast in stone, they do significantly raise MAHB’s earnings risk over the medium term,” he said.

RHB Investment Bank Bhd has changed its call to “buy” from “neutral” and revised its TP upwards by 17% to RM8.28 from RM7.60, implying 7.5 times 2023 forecast enterprise value to earnings before interest, taxes, depreciation, and amortization ratio (EV/Ebitda) vis-a-vis regional peers of 23.9 times.

“The worst should be over for the aviation sector, with signs of a promising recovery in passenger traffic ahead,” said analyst Alexander Chia.

He added that the market has yet to reflect on the return of Chinese travellers, as the recovery of international passenger movements in the first quarter of 2023 (1Q2023) within Asia-Pacific was attributed to China’s border reopening.

“We are upbeat on government initiatives in securing deals with two Chinese tour agencies for 450,000 visitors from China to meet the target of 5 million tourist arrivals from there in 2023,” he added.

Chia said other key events to expect in mid-2Q2023 are the resolution on the finalised gazetted passenger service charge (PSC), the loss capitalisation mechanism from Mavcom’s third consultation papers and MAHB’s new operating agreement with the government.

MAHB is also expected to deploy a “digital superhighway” called My-Compass to increase Malaysia’s visibility in China, and to be launched in 2Q2023, said Chia.

MIDF Research, however, has maintained its “neutral” call on MAHB and a TP of RM7.35 and made no revisions on its passenger traffic assumptions as the total passenger traffic in 1Q2023 has matched its full-year estimate at 21%.

Nevertheless, it said local airlines will be supported by narrowing jet fuel crack spreads with fuel surcharges remaining in place, the appreciation of the ringgit against the US dollar and airfares to be reasonably priced.

“Passenger movements in April 2023 should be boosted by homebound trips for Eid Al Fitr as well as the entry of Indonesian-based TransNusa Airlines,” said MIDF.

“We anticipate a further recovery in passenger traffic, particularly as MAHB expects the total destination served within its network to recover to 79% of 2019 level by end-2023 [versus] end-2022 [of] 64%.”

At the time of writing, MAHB’s share price was eight sen or 1.13% higher at RM7.16, valuing the company at RM11.91 billion.