THE promise of a vaccine to curb the COVID-19 spread has helped lift the most-battered aviation names, but perhaps caution is the best practice when delving on aviation stocks due to their inherent riskiness.
But between airport and airline stocks, CGS-CIMB Research prefers the former, given they could benefit from the recovery and are lower risk than the latter.
“Although airline share prices gave up some of their gains yesterday, airport stocks continued their rise in a classic mean reversion towards cyclicals and industrials, but probably also due to investors’ fear of missing out,” observed analyst Raymond Yap.
As a whole, however, CGS-CIMB Research remained cautious on the aviation sector in general despite the positive vaccine-related news given it may be difficult for vaccines to be widely available until mid-2021.
“The World Health Organisation’s plans is to deliver two million doses by end-2021 which represent circa 26% of today’s global population of 7.8 billion but this may enable only partial, gradual, and cautious border re-openings across the globe,” wrote Yap in an aviation sector update.
“Our earnings estimates incorporate reasonable recovery assumptions which may even run the risk of being too optimistic.”
On valuation expansion despite tough fundamentals, CGS-CIMB Research applied a 20% discount against Malaysia Airports Holdings Bhd’s sum-of-parts of RM6.43 as a safety net against customer defaults to derive its target price of RM5.14 (with an “add” rating), of which the discount may not be necessary if risks dissipate.
However, the research house continued to reiterate its “underweight” call on the aviation sector, given that “market sentiment is running too far ahead of fundamentals”.
Meanwhile, TA Securities Research also maintained its “buy” rating on MAHB as one of its potential “vaccine” trades but with a lower target price of RM6.50 (from RM7.05 previously).
“Given the positive development in COVID-19 vaccine, we would not be too pessimistic on MAHB’s future prospects,” reckoned analyst Tan Kam Meng.
This is despite the backdrop of MAHB recording total passenger movements of 677,000 for its Malaysia operations in October, down 60.5% month-on-month and 92.1% year-on-year.
At 10.10am, MAHB was down 14 sen or 2.63% at RM5.19 with 380,700 shares traded, thus valuing the company at RM8.61 bil. – Nov 12, 2020
