MIDF Research has maintained its buy call on Malaysia Airports Holdings Bhd (MAHB) with a lower target price (TP) of RM7.65 per share from RM7.83 previously after taking into account the net effect of the revised annual passenger traffic forecast.
“Our valuation is based on our discounted cash flow, assuming an unchanged weighted average cost of capital of 8% and Beta of 1.1.
“Following the revision in our annual passenger traffic forecast and the expected additional passenger service charge at Istanbul Sabiha Gokcen Airport, the net effect on our earnings estimates would be less than 1% reduction in FY20E, FY21F and FY22F earnings estimates,” the research house said in a note on March 12.
Assuming that the coronavirus outbreak would continue in the next two to four months, the research house said MAHB could still expect traction from other countries, namely India, which so far has only 60 confirmed cases of Covid-19, a manageable figure so far among major Asian nations.
The 15-day visa-free travel had been extended for Indian nationals for the whole of 2020, coinciding with the Visit Malaysia Year campaign. Moreover, tourist arrivals from India in Malaysia reached 0.6 million in FY18, almost comparable to South Korea and 52.2% higher than Japan.
“Other growth factors would include the rollout of MAHB’s biometric identification process for international departing passengers by June 2020. We opine that the fears over Covid-19 will subside by then.
“Henceforth, we still believe that MAHB passenger numbers can meet the 100.1 million mark in 2020 at the current juncture, representing a growth rate of less than 4.8% yoy before rebounding to more than 8.2% yoy in 2021, underpinned by the expected recovery from Covid-19,” said the research house.
However, MIDF Research is expecting the decline in passenger traffic to extend into March and April 2020 after taking into effect the wider travel ban by the Malaysian government on all Italians, Iranians, South Koreans and other foreigners arriving from these countries effective March 13.
Furthermore, more than 100,000 Covid-19 cases have been confirmed at the time of writing.
In terms of valuations, MAHB’s stock price is trading at a 12-month price-to-earnings ratio (PER) of 20.4x, less than half of its five-year average (PER) of 64x and at a discount compared to the regional PER of above 30x.
This presents an opportunity for investors to take a position on any weakness, given how turnaround occurred during the pandemics in the past. The research house observed an uptick in valuation three months after the peak of the severe acute respiratory syndrome (SARS) outbreak in 2003, where its share price rebounded to more than 31%.
MAHB’s share price opened 0.17% higher at RM5.89 sen before the midday break on March 12, giving it a market capitalisation of RM9.79 bil. – March 12, 2020
