Bullish expectations baked into the price
? 1Q22 core net loss was 143% of our FY22F estimate (73% of consensus),
which we consider broadly in line as we expect sharp pax recovery ahead.
? Nevertheless, we downgrade MAHB from Add to Hold as the reopening play
is largely in the price, with limited scope for upside surprise from this angle.
? We lower our SOP-based TP to RM6.93 as we raise our cost of equity
assumption for Malaysia on the back of higher risk-free rates.
Sequential narrowing of losses continues in 1Q22
MAHB’s group 1Q22 core net loss of RM86m was 17% narrower qoq as Malaysia (MY)
saw a narrower loss on the back of sequential recovery in both domestic and inter’l pax,
with the latter benefitting from the vaccinated travel lane between KL and Singapore as
well as umrah traffic to Saudi Arabia. The better qoq MY performance was partially offset
by lower qoq ISG core net profit due to the qoq drop in pax traffic that was partly
seasonal and partly caused by Turkey’s domestic economic difficulties. On a yoy basis,
MAHB’s group 1Q22 core net loss was 61% narrower, with MY reducing its loss and ISG
turning around into a profit. On the balance sheet front, MY raised RM800m sukuk bonds
in late-2021 and ended up with a cash balance of RM1bn as at 31 Mar 2022. MY raised a
further RM800m sukuk in late-Apr 2022 and will probably need to raise more to refinance
a RM1.5bn sukuk maturing in Dec 2022F. MY has access to RM1.3bn revolving credit
facilities from banks and/or can opt to issue a further RM5.2bn in additional sukuk. As for
ISG, it had €266m (RM1.2bn) in cash as at 31 Mar 2022, which is more than enough to
repay the €45m to banks this year and €50m next year. The government of Turkey had
indefinitely deferred a total of €230m in concession fees due in Jan 2021 and Jan 2022
but ISG may have to set aside €115m to pay for Jan 2023F’s concession fee.
Our earnings estimates and TP reflect an optimistic traffic outlook
The outlook for MY’s pax traffic is bullish as the country reopened its inter’l borders on 1
Apr 2022 to quarantine-free travel for fully-vaccinated travellers. From 1 May, it no longer
mandated pre-departure and on-arrival Covid-19 tests for the fully-vaccinated as well as
abolished the requirement to purchase Covid-19 insurance protection. In Apr 2022, MY’s
inter’l pax recovered to 14.5% of the pre-pandemic level in Apr 2019, double the 7.4%
during 1Q22, and rose further to 20% in May 2022. MAHB noted that airlines’ schedules
suggest seat capacity recovering to 50% of pre-pandemic levels in Jul 2022. Our forecast
is for MAHB’s inter’l pax traffic to recover to 40% of the 2019 level on average for 2022F,
which is a possible stretch target on the assumption that China opens its borders by Sep
and that there is a strong desire by Malaysians to travel overseas despite the shortened
3-week year-end school holidays in Dec 2022F vs. the typical six weeks pre-pandemic.
Our estimates and TP for MAHB are based on these assumptions and the downside risk
is for reality to undershoot due to insufficient airline seat capacity, high airfares and other
impediments, such as the administrative hassle of renewing expired passports. Upside
risks include improved terms for the new Operating Agreement.