KUALA LUMPUR (Dec 22): Hong Leong Investment Bank (HLIB) Research has maintained its “overweight” rating on the aviation sector and said 2024 will see further earnings growth for the sector after a recovery in 2023.

In an update on Friday, the research house said the sector will benefit from increasing air travel demand (especially the international segment driven by China and India), in tandem with the reinstatement of aircrafts to cater for the higher demand.

Furthermore, it said the expected depreciation of the US dollar and a decline in jet fuel prices will improve the sector’s profitability.

HLIB said as global activities and international travel requirements normalise, it has seen strong catch up for regional Asean travel demand initially, while international (non-Asean) travel has started to pick up in recent months.

“For 2024, we expect growth to be mainly driven by the international travel segment given the further relaxation of visa requirements for China and India sectors, further accelerating improvement in international travel mix. Overall the aviation sector is expected to gain from the improving international travel mix given that international travel commands higher spending power and provides higher margins,” it said.

The research house said despite huge setbacks from the pandemic in 2020, the overall aviation sector managed to sustain its cash liquidity over the period and is currently riding on the strong recovery of air travel demand in 2023.

It said the aviation sector continued to report improving performance.

“In its latest 9MFY23 results, Malaysia Airports Holdings Bhd (MAHB) reported a relatively healthy balance sheet position with RM6.7 billion shareholders equity, RM2.0 billion cash, RM640.6 million short term debt and RM27.0 million short term lease liabilities.

“MAHB continued to register a positive operating cash-flow of RM972.3 million for 9MFY23 with a reported RM212.5m profit,” it said.

On the other hand, HLIB said Capital A Bhd (CapA) was still in a weak financial position, with RM8.4 billion negative shareholders equity position, RM578.5 million cash, RM945.8 million short term debt and RM5.1 billion short term lease liabilities.

“CapA nonetheless, was able to turn its operating cash-flow to positive (RM1,505.1 million), with a reported profit of RM996.6 million for 9MFY23 (driven by consolidating gains of Thai AirAsia in 2QFY23).

“Maintain ‘overweight’ with ‘buy’ recommendations on CapA (TP: RM1.40) and MAHB (TP: RM8.90),” it said.