PETALING JAYA: The reopening of borders has led to a sharp recovery in air passenger traffic and this is likely to push airlines’ earnings to pre-pandemic levels sooner.
UOB Kay Hian Research believes that with further resumption of flights and gradual improvement in passenger traffic, pressure on both Capital A and MAHB’s operating profitability should ease in the second quarter of 2022 (2Q22) with narrowing losses.
It expects MAHB’s passenger traffic volume to recover to 59% and 91% of pre-Covid-19 levels in 2022 and 2023, respectively.
As for Capital A, it estimates that the passengers carried and load factors will recover to about 80% of pre-Covid-19 levels in 2023.
The domestic and international traffic volume recovery is based on international travellers’ mobility behaviour amid the removal of pandemic-related constraints.
The pent-up travel demand amid higher retail spending and consumers’ accumulated savings and harmonising of entry coordination and border-crossing requirements within the Asean region augur well.
It prefers MAHB as its sector top pick for its attractive valuations and event catalysts.
It has a “buy” call on the counter with a target price of RM7.52 a share.
For the sector, it has a “market weight’’ stance.
MAHB has received the authorities’ approval on the new operating agreement (OA) principal terms and the finalisation is expected by the second half of 2022.
It expects more favourable terms for the OA and this includes adjustment of airports’ passenger service charge (PSC).
Moving into the second half of the year, it expects the airport segment to outperform the airline segment.
This is supported by MAHB’s better earnings visibility and balance sheet condition.
In 2Q22, AirAsia Malaysia Bhd posted a stronger load factor of 84% with passengers carried with capacity increasing significantly to 3.8 million.
It said jet fuel prices, which usually command about 20% to 30% of airlines’ operating costs, have been surging as much as 100% year-to-date.
It believes the sustained high fuel prices may put upward pressure on AirAsia’ airline costs, but will be partially buffered by higher fares.
AirAsia has reintroduced fuel surcharges for all its domestic and international flights to transfer the cost to end-consumers in 2Q22 in order to offset the incremental fuel cost, it added.
Capital A is classified as a Practice Note 17 (PN17) company due to its negative shareholder funds.
While the group is in the midst of formulating a plan to address the PN17 status, the research house believes that investors’ sentiment will likely remain impacted until this is resolved.
The deadline for submission to Bursa Malaysia is on Jan 6, 2023.
It is forecasting that Capital A will be able to turn around its negative shareholder funds in 2024-2025 based on its earnings projections.