MAHB poised to post higher earnings

PETALING JAYA: The strong recovery in air travel and improving international traffic mix could push Malaysia Airports Holdings Bhd (MAHB) to record higher earnings this financial year and the next.

A recovery in revenue will be partially offset by the expected higher cost structure next year.

Hong Leong Investment Bank (HLIB) Research has projected MAHB to post an earnings of RM524mil for the financial year 2023 (FY23) and RM749mil in FY24.

It believes this will be a new record year, higher than the pre-pandemic 2019 level.

It has thus reaffirmed its “buy’’ recommendation on MAHB with an unchanged target price (TP) of RM8.50 a share based on a sum-of-parts valuation, given the improved earnings outlook, leveraging on to the recovery of air travel demand in FY23 to FY24.

It also hoped the finalisation of the operating agreement (OA) and regulatory asset base (RAB) structure will strengthen MAHB’s commitment towards airport developments in the country.

The conclusion of the new OA and RAB (working in tandem) are expected in the fourth quarter of this year (4Q23).

For the first-half period, MAHB’s passenger traffic recovered strongly to 38.8 million passengers for Malaysia.

As traffic improves, there is a stronger recovery trend of international traffic for the group (both Asean and non-Asean for Malaysia).

China traffic is expected to recover back to 63% of the pre-pandemic 2019 level (versus 40% in June and 19% in March) based on planned seat capacity by end-2023 (for the Malaysian operations), it added.

The international segment provides higher revenue and margins due to the higher passenger service charge and spending consumption (entitled to purchase duty-free products) at the airports, as compared to the domestic segment.

The research house noted China passengers have a stronger average spending power of roughly RM460 per ticket compared to the average passenger spend of RM290 per ticket in 1Q23 (versus RM230 per ticket in 2019).

MAHB also wants to raise its non-aeronautical revenue. During the pandemic, the airport operator took the opportunity to implement its commercial reset programme to improve airport traveller experience.

The rest of the programme aims to improve the structure of the rental business model, reconfigure the mix of shops (acclaimed right size, right brand, right balance, right location and higher yields) and increase overall retail space by about 10%.

MAHB group’s wholly owned retail business under Eraman saw its operations also being realigned to enhance the average income per passenger.

As traffic recovers back to 70% of the pre-pandemic level (trailing 12-month period), MAHB will be able to receive 100% of lease rental income, the research outfit noted. HLIB Research expects a jump in contribution from MAHB’s non-aeronautical segment by 4Q23/1Q24, based on its projection of continued traffic growth.