Date of Report: October 17, 2024
Broker Name: Maybank Securities Inc.
Company Overview
MacroAsia Corp (MAC) is the largest aviation support services provider in the Philippines. The company specializes in multiple segments including maintenance, repair, and overhaul (MRO) services, in-flight catering, and ground-handling operations. Through its subsidiaries and associates, MAC also engages in water concessions, aviation education, mining exploration, and IT services. The company operates under the trade name “MacroAsia Corporation.”
Investment Recommendation
Maybank Securities has initiated coverage of MacroAsia Corp with a BUY rating and a discounted cash flow (DCF)-based target price (TP) of PHP 10.00. MAC is currently trading at a multiple of 7.0x FY25E price-to-earnings ratio (PER), which is lower than its historical average of 18.6x. The target price suggests a valuation of 11.6x FY25E PER, offering a 43% upside potential from its current share price of PHP 7.00.
Growth Drivers
Strong Recovery in the Aviation Sector
The report highlights the ongoing recovery in the tourism sector, which has been driving increased passenger and flight movements at Ninoy Aquino International Airport (NAIA). The resurgence of international visitors to pre-pandemic levels presents growth opportunities for MAC, particularly in its core business units.
Expansion of Core Business Units
- Ground-Handling Services: MAC’s subsidiary MASCORP is anticipated to handle between 201,000 to 219,000 flights in FY24/FY25, marking a 10% to 9% year-on-year growth.
- MRO Services: Lufthansa Technik Philippines (LTP), an associate company, is expanding its facilities to cater to rising demand for both base and line maintenance.
- In-Flight Catering: The catering unit aims to increase meal sales to 23.9 million in FY24 and 25.4 million in FY25, supported by efforts to expand beyond NAIA.
Strategic Expansion and Partnerships
MAC has been diversifying its revenue streams by expanding into water services, ICT, and food catering for institutional clients. For instance, MacroAsia SATS Food Industries Corporation (MSFI) was established to cater to non-airline clients such as business process outsourcing companies, banks, and quick-service restaurants.
Financial Performance and Projections
Revenue and Profit Growth
The company reported consolidated revenue of PHP 7.99 billion in FY23, representing a 64% year-on-year increase. Net income also grew substantially, rising by 132% year-on-year to PHP 1.07 billion. For 1H24, MAC’s net income surged by 122% year-on-year to PHP 849.1 million, driven by a 22% increase in consolidated revenue to PHP 4.7 billion.
Earnings Forecasts
The report projects MAC’s net income to grow by 26% in FY24 and 21% in FY25, reaching PHP 1.3 billion and PHP 1.6 billion respectively. The forecast is based on expected increases in meal sales, improved ground-handling performance, and contributions from non-aviation segments.
Competitive Positioning
Market Leadership
MAC commands a leading market position in aviation support services:
- In-Flight Catering: MAC has a 63% market share at NAIA, serving major carriers like Philippine Airlines (PAL) and Cebu Air Inc. (CEB).
- Ground Handling: MASCORP operates at 22 airports across the Philippines, making it the largest ground-handling company in the country.
- MRO Services: LTP, an associate company, is a leader in both line and base maintenance across the region, with facilities that are undergoing expansion to meet rising demand.
Expansion and Investment Plans
New Hangar at Clark International Airport
LTP is planning to build a second hangar at Clark International Airport, valued at PHP 8 billion (approximately USD 150 million). This facility will help address capacity constraints and enable MAC to expand its client base.
Expansion of Food Catering Facilities
MAC’s food unit is diversifying its services by expanding its commissary in Muntinlupa City to double the meal production capacity to 70,000 meals per day. This project is expected to cost PHP 1 billion, with operations commencing by 2028 or earlier.
Risks and Challenges
Market Volatility
MAC operates in the volatile aviation sector, which is susceptible to economic fluctuations, geopolitical events, and regulatory changes. These factors can affect demand and profitability.
Foreign-Exchange Risk
With a portion of revenue denominated in USD, MAC faces foreign-exchange risks that could impact its financial performance. Approximately 16-17% of MAC’s revenue in recent years was USD-denominated.
Regulatory Compliance and Competition
Operating in special economic zones, MAC must adhere to strict regulatory standards, and any non-compliance could lead to penalties. Additionally, MAC faces competition across its core services from both domestic and international players.
Strategic Outlook
Focus on Aviation Recovery and Non-Aviation Diversification
MAC is well-positioned to benefit from the recovery in the aviation industry. Moreover, its investments in water utilities, non-airline food services, and expansion into new markets will help diversify its revenue streams and reduce dependency on the aviation sector.
Conclusion
Overall, Maybank Securities is optimistic about MAC’s growth prospects, supported by strategic expansions, industry recovery, and a strong market position. The company’s proactive measures to diversify its services, expand facilities, and capitalize on tourism recovery trends make it an attractive investment opportunity.
