Aviation industry likely to see earnings soaring next year

PETALING JAYA: The aviation industry is expected to see further earnings growth next year after witnessing a recovery in 2023.

According to Hong Leong Investment Bank (HLIB) Research, the sector would benefit from the increasing air travel demand (especially the international segment driven by China and India sectors) in tandem with the reinstatement of aircraft to cater for the higher demand.

“The expected depreciation of the US dollar and declined jet fuel prices will improve the sector’s profitability,” it said.

The research house maintains an “overweight” call on the sector with “buy” recommendations on Capital A Bhd (target price of RM1.40) and Malaysia Airports Holdings Bhd (MAHB) with a target price of RM8.90.

HLIB Research said MAHB’s FY24 would likely be a new record performance given the expected higher air travel demand and higher airline capacitie.

“We have seen MAHB continuing to report stronger profits for the first three quarters of 2023 and expect stronger profits in the final quarter of 2023, driven by the improving air travel demand and international air travel mix for both Malaysia and Turkiye operations,” it added.

In its nine-month financial year 2023 results, MAHB reported a healthy balance sheet position with RM6.7bil shareholders equity, RM2bil cash, RM640.6mil short-term debt and RM27mil short-term lease liabilities.

It continued to register a positive operating cash-flow of RM972.3mil during the period with a reported RM212.5mil profit.

The research house is also bullish about Capital A as its expects a stronger 4Q23 and turnaround in FY24 given the improved situation in ringgit to US dollar exchange rate, jet fuel prices and full 210 fleet of operating aircraft by early 2024.

It added that Capital A would be able to take advantage of the increasing air travel demand and has been raising its frequencies to China and India.

This was despite Capital A being in the red in the past quarters dragged by the weaker ringgit, surge in jet fuel prices and higher repair and maintenance charges.

Capital A, which is still under PN17 status, has targeted to resolve the issue by early 2024.

“Management previously guided the plan to distribute in specie Aviation Group to shareholders, which will subsequently be acquired by AirAsia X Bhd (to be renamed as Aviation Group) through a share swap exercise to maintain listing status,” said the research house.

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MAHB , Capital A , Aviation


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