Malaysia's aviation sector 'set to fly high'
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Malaysia's aviation sector has been raised to "overweight" from "neutral" on expectations of high traffic growth and rising profits, according to Maybank Investment Bank Research.
The research house said the sector had underperformed the FBM KLCI in 2012 due to depressed earnings, escalating fuel prices and regulatory uncertainty, adding that the sector had de-rated with an average decline of 27.6 per cent in 2012.
But year-to-date for 2013, its top pick, Malaysia Airports Holdings (MAHB) gained 15 per cent while the airlines were both up modestly by 6 per cent in share prices.
MAHB shares rose five sen, or 0.8 per cent yesterday to 6.05 ringgit, its highest in 16 months. The airport operator has gained 16 per cent year-to-date with a 12-month consensus target price of 6.47 ringgit.
It is currently channelling its efforts to open KLIA2 on June 28 and closely monitoring the progress of the work being done by the contractors.
MAHB is employing 1,102 new personnel for KLIA2 of whom 746 are in aviation security, 86 in airport fire and rescue services, 98 in engineering and maintenance and 172 in operations services.
“We are now ‘overweight’ on the sector as traffic growth will accelerate and profits will rise, in our view. Furthermore, valuations are undemanding and exhibit value. Volatile fuel price is the primary risk factor.
“Our top picks in order of preference are MAHB, Malaysia Airlines (MAS) and AirAsia,” Maybank Research analyst Mohshin Aziz wrote in the report.
Maybank Research said passenger traffic growth in Malaysia in 2012 was 5 per cent lower than its 10-year compounded annual growth rate of 7 per cent while regional peers grew between 5 and 14 per cent.
“This slower growth was due to MAS cutting capacity by 12 per cent on its under-performing routes which benefited AirAsia and AirAsia X immensely as seen by their record load factors.
“Airlines across the region faced severe profit drops of between 30 per cent and 40 per cent year-on-year. AirAsia’s 2012 core net profit grew 0.3 per cent year-on-year and MAS managed to reduce its losses by 44.5 per cent year-on-year while MAHB posted a 2.2-per-cent year-on-year growth,” it said.
The research house said the worst was likely over, adding that traffic growth was expected to accelerate in 2013 and the robust domestic economy will underpin strong growth.
Things were hotting up due to the entry of Malindo Air, it added, But there appeared to be an over-capacity risk looming as AirAsia, AirAsia X and Malindo would collectively take in 27 aircraft in 2013.
Maybank Research said the main downside risk for the airline sector in 2013 was fuel prices, comprising 40 to 45 per cent of total costs.
