ON the overall, the re-opening of Malaysian borders is positive news for the aviation industry as this is poised to attract a higher volume of international travellers.
This has prompted CGS-CIMB Research to reiterate its “overweight” outlook on the aviation sector with Malaysia Airports Holdings Bhd (MAHB) being its top pick with an “add” rating and a target price of RM7.05.
“MAHB will benefit from the upcoming re-opening of Malaysia’s borders on April 1 2022F, planned start-up of new airline called MYAirline in August, and a new operating agreement in 2H 2022F,” opined analyst Raymond Yap in an aviation sector update.
However, CGS-CIMB Research is pretty pessimistic when it comes to how Capital A Bhd (previously AirAsia Group Bhd) will fare in light of the border re-opening.
“Despite the re-opening of Malaysia’s borders, Capital A’s airline may come under pressure from high fuel costs and price competition from incumbents and new entrants,” justified the research house which reiterated its “sell” rating on the budget airline operator with a target price of 19 sen.
In a strategic decision yesterday, Prime Minister Datuk Seri Ismail Sabri bin Yaakob announced that Malaysia will transition into COVID-19 endemic stage from April 1. The country will also re-open its international borders at the same time, marking Malaysia as the first country in ASEAN to do so.
However, Maybank IB Research was “marginally positive” for Capital A, still maintaining its “buy” call on the airline operator with a target price of RM1.29.
“Malaysia AirAsia (MAA) has historically contributed circa 80% to group earnings. In 2019, passengers carried on international flights accounted for 46% of MAA’s passengers carried,” observed analyst Yin Shao Yang.
“Fare/stage length for international flights do not differ very much from domestic ones. To be sure, more international flights will defray aircraft lease expenses and help return Capital A to profitability.
“We maintain our earnings estimates which are based on MAA domestic passenger traffic recovering to 55%/110% of pre-COVID-19 levels in FY2022E/FY2023E and MAA international passenger traffic recovering to 28%/110% of pre-COVID-19 levels in FY2022E/FY2023E.”
On the contrary, Maybank IB Research was “very positive” on MAHB considering that international passengers accounted for 51% of MAHB’s Malaysian operations in 2019.
“Not only are international passenger service charges (PSC) five to seven times that of domestic PSC, international passengers are allowed to buy duty free items. Given how high yielding international passengers are, they will be instrumental in returning MAHB to profitability,” projected the research house.
“We maintain our earnings estimates which are based on Malaysia domestic passenger traffic recovering to 45%/100% of pre-COVID-19 levels in FY2022E/FY2023E and Malaysia international passenger traffic recovering to 20%/80% of pre-COVID-19 levels in FY2022E/FY2023E.”
At 10.54am, Capital A was down 1.5 sen or 2.26% to 65 sen with 31.33 million shares traded which valued the airline operator at RM2.7 billion while MAHB was up 18 sen or 2.97% to RM6.24 with 781,600 shares traded which gave the airport operator a market capitalisation of RM10.35 bil. – March 9, 2022
