Malaysia Airports Holdings Berhad (MAHB)’s 1QFY20 total passenger declined 24% to 26m or 22% of our full-year forecast. We consider the passenger numbers to be in line with our full-year forecast as we expect a much stronger 2HFY20. While a prolonged coronavirus pandemic could impact MAHB’s earnings, the experience from SARS suggest that passenger volume will see a recovery once the pandemic subsides. YTD, the stock is down 42%. We believe the recent sell-down presents a buying opportunity. No changes to our FY20E/FY21E earnings forecasts. Maintain OP with a TP of RM5.70.

YoY, 1QFY20 total passengers hit 22% of our full-year forecast. YoY, 1QFY20 total passengers growth declined 24% to 26m passengers or 22% of our full-year forecast. We consider the passenger numbers to be in line with our full-year forecast as we expect a much stronger 2HFY20. Generally, the weak passenger movements across the board were due to COVID-19 leading to the imposition of the Movement Control Order (MCO) effective 18 March 2020 in Malaysia and suspension of international flights for Turkey effective 27 March 2020. Istanbul SGIA airport is currently closed for operations from 28th March to 30th April 2020. YoY, 1QFY20 total MAHB’s international and domestic sectors declined by 28% and 20%, respectively. In Malaysia, passenger movements registered a decline of 28% due to lower International (-32%) and domestic (-22%) sectors. KLIA passenger movements declined by 29.3% due to lower International (-31%) and domestic (-26%) sectors. ASEAN and non-ASEAN sectors declined by 31.0% and 30.5%, respectively. KLIA Main Terminal passenger movements declined by 26.5% due to lower international (-29%) and domestic (-17%) passenger movements. Passenger movements at klia2 declined by 32% due to lower international (-33%) and domestic (- 29%) sectors.

Outlook. We expect MAHB to be hit by the COVID-19 in terms of passenger traffic growth due to travel restrictions and potential tariff rebates or discounts for its retail rentals. Case in point, AirAsia has temporarily suspended all international and domestic flights in Malaysia from Mar 29 to April 25, while AirAsia Philippines has been suspended from Mar 20 to April 14. Additionally, AirAsia Indonesia will see a sharp reduction in frequency in its international flights. Similarly, AirAsia Thailand has halted its international flights from March 22 to April 25. However, we understand that the group is undergoing cost optimisation programme including energy conservation in its premises, closure of underutilised areas in the airport, postponement of advertising and promotional events. MAHB is still talking to the Government in terms of the mechanism on the recently announced rebates on rental for premises at the airport as well as landing and parking charges. We highlight that management is not ruling out RAB and discussion with the relevant authorities is still on-going. For illustration purposes, assuming a 20% rebate on both rental and landing & parking charges over a 6- month period, a back-of the envelope calculation suggest a negative impact of 20% to our FY20E net profit.

Re-iterate OP. No changes to our FY20E earning forecast which is conservatively lower than consensus. TP is RM5.70 based on 19x FY21E EPS (-1.0SD below historical forward mean) to reflect the de rating of the market on the back of a bleaker economic outlook, both globally and for Malaysia. YTD, the stock is down 42%. We believe the recent sell-down presents an opportunity to buy into MAHB.

Risks to our call include: (i) prolonged Covid-19 disruption beyond the mid-year resulting in lower-than-expected passenger volume, and (ii) weaker-than-expected WACC from the RAB.

Source: Kenanga Research - 13 Apr 2020