Malaysia’s air travel industry recovering slower than expected: CGS-CIMB

CREWING and operational bottlenecks, a weak balance sheet and high fuel costs have crimped passenger traffic recovery prospects for Malaysia Airports Holdings on both the domestic and international fronts, according to CGS-CIMB.

The research house has lowered its target price for Malaysia Airports to RM6.76 from RM6.93 previously to account for lower traffic forecasts for FY2022, while maintaining its “hold” call on the Bursa-listed counter.

In a report on Wednesday (Jul 20), analyst Raymond Yap also highlighted continued border controls in North-east Asia as well as “public reticence to travel abroad during the pandemic” as contributing factors to the slower-than-expected recovery in passenger traffic.

Domestic traffic forecasts have been cut to 75 per cent from 85 per cent of Malaysia Airports’ 2019 base, and international traffic forecasts have been reduced to 30 per cent from 40 per cent previously.

“While we forecast Malaysia Airports’ FY22F international pax to rise by 14.63 million year on year, domestic traffic may rise by an even greater 29.65 million pax, leading to a dilution in the average revenue per pax. Regardless, depreciation expense will rise proportionately with the increase in total pax traffic,” said Yap.

In the analyst’s view, these factors combined will constrain Malaysia Airports’ earnings recovery in FY2022 as he expects depreciation to rise as a percentage of the group’s revenue.

Traffic estimates for Malaysia Airports’ fully owned Turkish asset Istanbul Sabiha Gokcen (ISG) have nonetheless been raised on the account of its strong performance in the year to date.

The analyst however flagged uncertainty in the terms of 230 million euros (S$326.9 million) of concession fees deferred by ISG from 2021 to 2022, as the Turkish government could either require full payment or give a partial waiver.

“We forecast that ISG will have sufficient funds to repay 230 million euros in full in FY2025, but that would leave ISG with a rather low cash balance and make it susceptible to unexpected economic shocks,” said Yap.

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Malaysia Airports may also have insufficient cash balance to repay RM1.5 billion (S$469.7 million) of sukuk due Dec 16 this year if it fails to generate positive operating cash flows for the rest of 2022, he added, although the analyst is confident in the group’s ability to successfully raise the necessary debt refinancing.