Aviation sector

NEUTRAL

MIDF RESEARCH (FEB 27): Malaysia Airports Holdings Bhd’s (MAHB) network of airports in the country recorded passenger movement of 6.3 million in January, surpassing the six million mark for the second consecutive month. This translates into a recovery of 75% (domestic: 89%, international: 62%) relative to its 2019 levels. The strong domestic sector recovery in January, which is just 11.4% behind January 2019, was mostly driven by homebound travel during the Chinese New Year holidays. Meanwhile, the international sector recovery was partially lifted by China’s reopening on Jan 8 and the resumption of Qatar Airways’ operations after a temporary suspension during the Fifa World Cup, which ended on Dec 18, 2022.

We have yet to see a meaningful return of free-spending Chinese tourists due to the short notice given for China’s reopening. January saw 5,907 additional seat capacity (+16.2% month on month) being added for the China market. MAHB reported that the seat capacity filing was up 5% m-o-m in February. Despite seeing continuous reinstatement of capacity by local airlines, we reckon that the relaunch of more China destinations may be staggered due to: (i) the uncertainty pertaining to China-bound Covid-19 requirements, and (ii) the time taken to get passports renewed and visas approved. Nonetheless, the dismantling of China’s strict zero-Covid policy is an undoubted boon for the sector this year.

The continuous improvement in higher-yielding international passenger mix should help aviation players rebuild their profitability in the coming quarters. Domestic traffic will be partially supported by MYAirline’s network growth as it received another A320 aircraft last month, expanding its existing fleet to five aircraft. We should expect to see more routes being reinstated and introduced as local airlines reactivate their fleet.

We remain “neutral” on the sector as we believe the positives have been priced in. Relative to 2019 levels, we expect passenger traffic to recover to 85% this year (domestic: 90%, international: 80%). We maintain our “neutral” call on Capital A Bhd and MAHB, with a target price of 70 sen and RM7.45 respectively.

AME Elite Consortium Bhd

Target price: RM1.62 BUY

APEX SECURITIES (FEB 27): The group’s 9MFY23 revenue and net profit achieved 82.5% and 86.9% of our total year estimates respectively, after growing 61.8% and 120.9% year on year (y-o-y) owing to overall higher revenue recognition in the property development, construction and engineering segments.

We raise our FY24 core net earnings forecast by 18.1% to RM60.1 million, as we forecast higher revenue recognition in FY24 due to the initiation of the development of its new industrial park called i-TechValley and continuation of the Phase 3 development of i-Park @ Senai Airport City.

The group managed to grow its new property sales in 9MFY23 to RM324 million, up 147.7% y-o-y. Unbilled sales also rose 174.1% yo-y to RM273.3 million in 9MFY23. Buyers of AME’s industrial properties are mostly multinational corporations from countries such as the US, the UK, China and Taiwan.

We upgrade the group to “buy” with a higher target price of RM1.62 from RM1.58 previously. Our target price is pegged at FY24 fully diluted EPS and PER of 17.8 times, which is at its two-year mean PER, as the ongoing conflict between the US and China continues to drive foreign direct investments to Southeast Asia. As Malaysia is one of the most attractive places to invest in, the group is well positioned to benefit from this.

ITMAX System Bhd

Target price: RM1.80 BUY

HLIB RESEARCH (FEB 28): ITMAX’s all-time high 4Q22 core net profit of RM14 million lifted FY22’s core net profit to RM45 million (+48% year on year), which exceeded expectation, accounting for 107% of our full-year forecast. The outperformance was attributable to higher contribution from higher-margin and recurring video surveillance and analytics services.

As at November 2022, ITMAX had 19 subsisting contracts with a total unbilled order book of RM598.2 million. The remaining portion of its order book will be recognised progressively up to December 2029. As at end-3Q22, ITMAX’s tender book stood at RM600 million to RM800 million.

As borders reopen and restrictions are lifted, the company is looking to continue its growth by expanding into other geographical territories and segments.

We reiterate our “buy” call with a higher target price of RM1.80 from RM1.70 previously, reflecting the upward earnings revision. We believe this home-grown smart city integrated system and solutions provider is a compelling case, given its multiyear growth potential on the back of solid order and tender books.

Datasonic Group Bhd

Target price: 56 sen BUY

RHB RESEARCH (FEB 28): Datasonic’s 9MFY23 core profit of RM53.5 million exceeded our expectation. The significant year-on-year improvement in revenue and core profit was aided by order resumption of MyKad and pent-up demand for passport-related solutions. We raise our forecasts in anticipation of a strong earnings trajectory, with surging demand for its smart card- and passport-related solutions, coupled with potential project wins.

We expect stronger orders to take place in 4QFY23 and beyond on the back of surging demand and easing of supply bottlenecks for smart card- and passport-related solutions, while the number of expired passports remains elevated.

Datasonic’s outstanding order book is estimated at RM412 million. Management is actively pursuing new programmes and initiatives to further boost its order book, such as national digital identification cards, the new MyKad solutions and the identity management system under a memorandum of agreement with the Republic of Guinea’s Ministry of Urban Planning, Housing and Territorial Development.

We raise our FY23 earnings forecast by 28% but keep those for FY24 and FY25 relatively unchanged. Consequently, our target price is now raised to 56 sen.