Reflecting improved outlook into target price
? Reiterate Add, with a higher DCF-based TP of RM7.60, as we raise pax traffic
forecasts for both Malaysia and Istanbul Sabiha Gokcen (ISG).
? The reopening of Malaysia’s borders from 1 Apr 2022 was earlier than our
previous mid-2022F forecast and ISG’s international traffic has been strong.
? Other catalysts include the start-up of MYAirline by Aug and a potential
signing of a new Operating Agreement in 2H22F.
Malaysia reopened international borders earlier than thought
Our earlier traffic forecasts for Malaysia were based on the expectation that the country’s
international borders will reopen by mid-2022F, but Malaysia had decided to reopen from
1 Apr instead. With more international travel, we also expect higher domestic travel, due
to interstate connectivity to Malaysia’s international airports. As a result, we raise our
2022F domestic traffic forecasts by 21% (from 70% of the pre-pandemic base in 2019 to
85%), and raise our 2022F international traffic forecasts by 60% (from 25% of the pre-pandemic base to 40%). Our new forecasts are reasonable because in Feb 2022,
Malaysia’s domestic traffic already reached 69% of the 2019 base, and we expect a new
airline, MYAirline, to commence operations from Aug. Meanwhile, AirAsia and the
Malaysia Aviation Group (MAG) said that they plan to restore 90% and 70% of their preCovid-19 passenger capacities by end-2022F, respectively, which we think will be largely
international in nature, given that they have both concentrated on domestic capacity
restoration in the past six months. Domestic and international traffic recovery may also
come from Malindo and AAX, both of which sharply curtailed their fleet during the
pandemic. Malindo may transfer back to Malaysia some of the 24 737s that were
transferred to Indonesia in the past two years, while AAX may also restore some of its
medium-haul passenger services if cargo yields can continue to pay for the costs of the
flights given the high cargo yields currently. At ISG, we raise our 2022F international
passenger traffic forecast by 18%, from 85% of the pre-Covid-19 base to 100%. We have
already taken into account that Russia and Ukraine flights from ISG have been
suspended; these contributed 9-10% of the ISG passenger traffic in 2019.
Earnings have strong operating leverage to international pax
Our expectations for a strong recovery in international passenger volumes in Malaysia
and at ISG are very positive for MAHB, as the benchmark international passenger service
charges (PSC) in Malaysia are 5-7x higher than for benchmark domestic PSCs, while the
net international PSC at ISG is 5x higher than the net domestic PSC. Furthermore,
international flying can stimulate duty-free shopping, and boost MAHB’s duty-free sales
through Eraman in Malaysia. A stronger flow of international travellers can also help
MAHB grow its commercial rental and royalty income flows in Malaysia, and we expect
strong operating leverage due to the easing of the rental waivers given in the past two
years. Downside risks include longer-than-expected border closures for China, Hong
Kong and Japan.