MIDF Research has maintained its positive rating on the aviation sector, saying the government would continue to exercise its prudence and objectivity in determining the most suitable party to take over Malaysia Airlines Bhd (MAB).
On Jan 20, FocusM reported that Khazanah Nasional Bhd has been pushing for low-cost airline AirAsia Group Bhd to merge with MAB. Among the other suitors are Japan Airlines Co Ltd which proposed a RM1.12 bil injection of funds for a 25% stake and a proposal for KLIA to become a hub for Japan Airlines.
In a note on Jan 21, the research house said the decision to finalise the winning bidder is expected to take place in April.
“Notwithstanding this decision, AirAsia Group Bhd (AAGB) (buy; target price (TP):RM2.04) remains our top pick for the aviation sector as it is set to be one of the major beneficiaries of Visit Malaysia Year 2020 with RM1.1 bil allocated by the government for the tourism ministry including RM960 mil to drive awareness and promotion programmes,” it said.
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.
In the past Visit Malaysia years, international traffic growth had been commendable, and international traffic is likely to get a similar boost from the VMY2020 activities.
“We also continue to like AAGB as the company continues to enhance its cost structure, along with its efforts of rationalising 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,” said the research house.
Meanwhile, it said the adoption of Malaysian Financial Reporting Standards 16 (MFRS 16) will be a headwind in the coming years as the majority of AAGB’s fleet are leased.
“Nonetheless, 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 levies which took effect in September 2019 as the levies gazetted are lower than regional peers such as Thailand and Hong Kong,” it said. – Jan 21, 2020
