PETALING JAYA: Malaysia Airports Holdings Bhd (MAHB) looks set to enjoy a strong rebound in its airport operations and non-aeronautical business this year following lifting of movement restriction globally post the Covid-19 pandemic.
Hong Leong Investment Bank (HLIB) Research said airlines are ramping up capacity on travel demand leading MAHB to focus on international travel movements as this segment provides higher revenue and margins due to the higher passenger service charges (PSC) and spending on duty free products and services at the airports compared to the domestic segment.
“Based on latest January to February statistics, MAHB recorded passenger movement recovery back to 80% of pre-pandemic level for domestic segment, 70% for Asean and 55% for non-Asean.
“We believe there is strong potential upside to the international segment as we anticipate continued recovery into 2023 to 2024, driven mainly by AirAsia group,” the research house said in a report on the airport operator yesterday.
Hence, HLIB Research has forecast passenger movements in Malaysia for financial year 2023 to 2025 (FY23-FY25) to hit 87.6 million, up 66.6% year-on-year (y-o-y), 103.3 million (up 17.9% y-o-y) and 111.6 million (up 8.1% y-o-y).
Another boost to its prospects is the strong recovery in business recorded at the Istanbul Sabiha Gokcen International Airport (ISGA) in Turkey, where passenger movements are now at above pre-pandemic levels which enabled the company to post a pretax profit of RM115.6mil in 2022.
HLIB Research expects ISGA to record stronger earnings in the coming years as air travel remains robust while the recent earthquake in Turkey is not expected to impact its operations.
The research firm forecast passenger movements at ISGA for FY23 to FY25 to hit 33.8 million (up 11% y-o-y), 36.2 million (up 7% y-o-y) and 38.2 million (up 5.5% y-o-y).
MAHB moved to revamp its retail space rental business at its airports and its wholly owned retailer, Eraman’s operations, will result in stronger contribution from the non-aeronautical segment as air travel recovers further, HLIB Research added.
MAHB is also set to gain from the new operating agreement (OA) and proposed regulatory asset based (RAB) framework as these will allow the company to improve service quality of its airports and make a return on investment of about 14%, the research house said.
MAHB is expected to allocate RM400mil in capital expenditure (capex) this year to improve airports it operates in the country.
“We also understand that MAHB has now been confirmed (by government) as the developer for Penang International Airport and Subang International Airport (capex likely recognised under RAB 2024 to 2026),” the research house noted.
Taking all of the above into its calculation, HLIB Research expects MAHB to record earnings of RM464mil in FY23 and RM700mil in FY24.
“We understand that MAHB is allowed to make a return of RM1bil level in the regulatory period one (RP1) 2024 to 2026, while any shortfall of the return within the period will be recouped (at 90%) from RP2 onwards.
Given the expected improvement of MAHB’s operation and profits under a stable government, we believe MAHB’s current share price is relatively undervalued,” the research house said.
HLIB Research has maintained a “buy” call on MAHB but raised its target price to RM8.50 from RM7.75 previously, given the improved earnings outlook, underpinned by the recovery in air travel and the finalisation of OA and RAB structure. – The Star