MAHB – A long-term bet


THE year Malaysia Airports Holdings Bhd (MAHB) has had so far has certainly gone against the grain of what the airline operator has been accustomed to, but just as vaccines for the Covid-19 disease is slowly working its way into societies throughout the world, the beleaguered airport company is slowly finding its wings again.

THE year Malaysia Airports Holdings Bhd (MAHB) has had so far has certainly gone against the grain of what the airline operator has been accustomed to, but just as vaccines for the Covid-19 disease is slowly working its way into societies throughout the world, the beleaguered airport company is slowly finding its wings again.

A total of 120 airlines flew in and out of all its airports in financial year 2019 (FY19), but most have stopped.

Cathay Pacific Airlines last month after a three-year hiatus made its way back to the KL International Airport (KLIA). It is a positive for KLIA even though it took over the slots from Cathay Dragon, its unit that has since been shut down.

In January, Taiwan-based Starlux Airlines will make its debut at KLIA.

With the widespread vaccine rollout and as travel restrictions are slowly lifted, more airlines will fly back into KLIA. Since news of the vaccine broke, there has been an uptick in MAHB’s share price.

The stock has since surpassed the consensus target price of RM5.79 a share. So far, four broking houses out of 19 have a “sell” call on the stock.

MAHB’s shares closed at RM6.14 a share yesterday, with a market capitalisation of RM10.19bil.

This is a stock that saw its revenue reach RM5.2bil and net profit RM537mil in 2019.

Last year, it was ranked 12th busiest airport in its category by the Airports Council International, but the airport company has been hit hard by the pandemic.

From January to end-September, however, passenger movement contracted by 69.6%. Just in November the contraction was 74% from 71.9% in October.

Today, parts of its two biggest airports – KLIA and klia2 – are virtually empty. It has to shut down parts of the airport to save cost.

It is the right thing to do.

For the current FY20, it is targeting a 20% cost reduction.

Much of that is forced on it.

Passenger traffic, a key number, is going to be a pittance of what it was. TA Research is expecting 26.1 million (2019: 140 million) passengers for 2020.

Those numbers are translating to its bottomline. For the first nine months of FY20, revenue fell to RM1.6bil from RM3.87bil a year earlier.

Similarly, it recorded a net loss of RM431mil from a RM507mil net profit a year ago.

A report said earnings fell substantially short of expectations, with revenues of RM397mil missing forecast by 40% for the three months ended September 2020.

It said losses exploded, with a per share loss of 20 sen, which was 172% below earlier forecasts.

This year, the net loss could balloon to RM633mil.

Consensus estimates are that revenues will be half of FY19’s to RM2.3bil.

Things may change for the better in 2021 with the widespread use of the vaccines. Consensus forecast is a smaller net loss of RM73mil for FY21.

Maybank IB Research expects FY20 earnings before interest, taxation, depreciation and amortisation (Ebitda) to plunge 92% year-on-year (y-o-y) on lower passenger traffic.

For FY21, it expects Ebitda to recover 157% y-o-y on passenger traffic growth.

Despite all that, in November, KLIA saw 58 scheduled and charter airlines operating to 64 destinations in 35 countries. That includes cargo flights.

Amid the pandemic, MAHB has a lot on its plate as it enters 2021.

It has to finalise its operating agreement with the government by year-end. That gives it an additional lifeline to manage all the 39 airports till 2069.

Its cash burn rate of about RM130mil a month needs to be reduced if the pandemic is prolonged, although it still has cash reserves.

The implementation of the regulated asset based (RAB) framework remains unresolved for now. While the framework may be good for MAHB, there is fear that with the RAB, charges may rise for airlines and passengers.

MAHB, for now, is a long-term bet. But once borders and travel restrictions are lifted, people will just be too eager to pass through its airports to see the world again.

It would be a big beneficiary of a recovery in air travel. The domestic sector will also recover faster than international travel.

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