VMY2020 a catalyst for passenger traffic growth 

MIDF Research has maintained its positive rating on the aviation sector, mainly because of the anticipated continued international passenger traffic growth at klia2.

In a note on Jan 13, the research house said the growth at klia2 has exceeded that of the KLIA main terminal and is expected to continue with the commencement of  Visit Malaysia Year (VMY) 2020.

“We opine that VMY2020 would be a major catalyst to this year’s passenger traffic growth, with RM1.1 bil allocated by the government for the tourism ministry, including RM960 mil to drive awareness and promotion programmes. 

“Furthermore, the government’s initiative for a 15-day visa-free travel for tourists from China and India in 2020 will further support the overall passenger traffic growth as these travellers made up more than 20.0% of passengers in 2019,” it said. 

According to the research house, in previous VMYs, international traffic growth had been commendable, and international traffic is likely to get a similar boost from the VMY2020 activities. 

“Therefore, we strongly believe that Malaysia Airport Holdings Bhd (MAHB) passenger numbers for Malaysian operations will reach 110.8 million passengers in 2020, with a growth rate of 5.4%.

“Our top pick for the aviation sector is AirAsia Group Bhd (AAGB) (buy; TP: RM2.04). We continue to like AirAsia as the company continues to enhance its cost structure, along with efforts to rationalise revenue and cost via digitalisation efforts. 

“Our positive outlook on AAGB also hinges on its more prudent hedging policy, stable operations with added capacity and continuous improvement to drive its non-airline ancillary business. Meanwhile, the adoption of MFRS 16 will be a headwind in the coming years as the majority of AAGB’s fleet are leased.”

Nonetheless, the research house added that AAGB is expected to gain from a lower amount of interest beyond the fifth year of the lease term. 

“We opine that passenger growth in Malaysia will remain intact despite the departure levy which took effect in September 2019 as the levies gazetted are lower than those of regional peers such as Thailand and Hong Kong.”

However, TA Securities Holdings Bhd forecast that there will be no change to MAHB’s FY19-21 earnings projections. “We reiterate our buy recommendation on MAHB with an unchanged target price of RM8.58/share.

“We opine that this is a good opportunity to buy MAHB shares after the excessive selling pressure on the stock. Essentially, we believe its earnings growth would remain resilient with or without the Regulatory Asset Base (RAB) model,” it said.

The research house added that the resignation of Raja Azmi Raja Nazuddin as MAHB’s group CEO and the merger of The Malaysian Aviation Commission (Mavcom) and Civil Aviation Authority of Malaysia (CAAM) are signals that the RAB framework is no-go for MAHB. 

“However, we do not think that this is an Armageddon for the company and believe that MAHB’s future profitability would remain relatively intact in accordance with the operating agreement signed in 2009, which would see a PSC hike every five years.

“In conjunction with Visit Malaysia Year 2020, we expect another record passenger year for MAHB with total passenger movements of 110.4 million (+4.8%),” it said. 

MAHB opened 1.13% lower at RM7.07 before the midday break on Jan 13. – Jan 13, 2020

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