KUALA LUMPUR: Following sequential earnings improvement in 1Q23, the Malaysian aviation sector is expected to continue to recover as business and air travel are poised to return to pre-pandemic levels in 2024, said Kenanga Research.
"In 2024, we project tourist arrivals to jump further by 24% to 20m, compared to pre-pandemic level of 26 million," said the research firm, which has a "neutral" rating on the sector.
Kenanga cited Tourism Malaysia projections that tourist arrivals in Malaysia are expected to jump 60% to 16 million in 2023 from an estimated 10 million a year ago.
It said a key driver of the recovery is the return of Chinese tourists that historically contributed to an estimated 12% of total tourist arrivals in Malaysia.
Kenanga expects the travel growth to underpin Malaysia Airports Holdings Bhd
's (MAHB) (market perform, target price RM7) throughput demand in 2023.
Traffic growth is also expected to benefit from increased medium and long-haul flights to Perth, Sydney and Auckland, Southeast Asia and South Asia destinations.
Meanwhile, KL International Airport saw the return of Kuwait Airways after a seven-year hiatus, while two other foreign carriers - KLM Royal Dutch Airlines and All Nippon Airways - will resume non-stop flight operations to Amsterdam and Tokyo, respectively, after temporarily ceasing operations due to the Covid-19 pandemic.
In addition, Malaysia Airlines has increased its flight frequency to Tokyo from November 2022 while AirAsia Group is focusing on its medium-haul operations by increasing its Malaysia AirAsia X flights to 33 weekly across 10 routes from November 2022.
Adding a note of caution, Kenanga cited Mavcom's consultation paper that the proposal to raise airport tariffs based on CPI may not be sufficient for MAHB to generate enough cash flow for capex purposes, particularly for airport expansion and maintenance.
"While Mavcom also proposes a mechanism for MAHB to recoup losses incurred during Regulatory Period 1 (RP1) in Regulatory Period 2 (RP2), we are concerned over MAHB's cash flows over RP1," it said.
Meanwhile, Kenanga expects Capital A Bhd (market perform, target price 84 sen) to see further volume improvement in 2023 as it projects its system-wide revenue seat KM (RPK) to grow 79% to 42 billion in FY23.
Looking father into 2023, Capital A expects its passenger demand to continue to rise, judging by the encouraging load factors recorded at 159 international routes.
"The group has reactivated 157 aircrafts in 1QCY23 with plans in place to reallocate aircrafts to operating countries that has stronger demand.
"By end of 2023, the group is targeting to have all its 215 aircrafts deployed to cater for the rising demand," said Kenanga.
The group's digital segment is expected to remain loss-making.
airasia Super App is expected to a continued resurgence of travel demand, alongside expected growth airasia Food, Ride and Xpress.
Teleport is also expected to continue expanding in 2023 as it adds new international lanes and international hubs while BigPay has launched its digital lending platform to provide new loan products.
However, Kenanga said it remains mindful of Capital A being under PN17 status, as the group plans to announced the details of its regularisation plan by early July 2023 with completion expected by end 3Q23.
