28 May 2020
Recovery at airports are expected to be slow as consumer confidence in air travel remains key.
The research team at MIDF Amanah Investment Bank Bhd (MIDF Research) in its report on Malaysia Airports Holdings Bhd (MAHB) said: “Consumer confidence in air travel remains key and may take some time to be restored; even after governments begin the process of opening borders and relaxing travel restrictions.
“The reason being is that, additional procedures such as a 14-day quarantine from returning abroad may hamper demand for leisure travel.”
The recovery is such that it believed a return to the level of 2019 might not occur until 2023, taking around two years longer than global GDP.
It noted that travel restrictions were imposed for individuals travelling in and out of Malaysia since the MCO began on March 18, 2020 and continues during the Conditional Movement Control order (CMCO) which ends on June 9, 2020.
“Therefore, the second quarter of the financial year 2020 (2QFY20) will see a larger decline in passenger traffic compared to 1QFY20 with April already seeing only 137 passengers,” it said.
Nevertheless, it believed that recovery in domestic travel could improve faster than international travel.
It noted that the month of May 2020 has seen the resumption of domestic flights by certain airlines such as AirAsia Group Bhd to Sabah and Sarawak while Malaysia Aviation Group has operated several domestic routes out of KLIA and Subang Airport.
It also pointed out that most Malaysian carriers are set to resume international services from July 2020 before progressively increasing frequencies from end 3QFY20.
“Henceforth, we opine that domestic will pick up faster compared to international traffic as the overall sentiment remained a drag amidst the Coronavirus Disease 2019 (Covid-19) pandemic which has yet to find a vaccine,” it said.
As for the performance of retail outlets at MAHB’s airports, MIDF Research said with lesser footfall, retail and rental revenue dropped by 40.9 and 21.1 per cent y-o-y respectively.
“We gathered that MAHB has yet to be given the greenlight to offer rebates to retailers.
“Nevertheless, MAHB has taken the initiative to grant a 90-day credit period to retailers to manage their liquidity, and negotiate with the retailers to lengthen the tenure of the rental period, enabling them to recoup their capital invested in their outlets. As the management guided that around 70 per cent of MAHB’s commercial revenue is on fixed term, we do not discount the possibility of MAHB revising the rental rates lower in the long run to retain the retailers,” MIDF Research said.
Looking ahead, it noted that MAHB has embarked on a cost containment exercise beginning from March 2020 with a 20 per cent y-o-y reduction target for FY20 via consolidation and closure of underutilised areas and revise maintenance schedules relating to passenger movement.
“Under this initiative, MAHB has deferred all development capex, prioritising key critical maintenance capex (including replacement of aerotrain and baggage systems), leaving approximately RM300 million (previously circa RM1 billion) of budgeted capex in FY20,” it said.
All in, MIDF Research downgraded its recommendation on the stock to ‘neutral’ given the current weak outlook for airports.
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