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Kenanga Research & Investment

Author: kiasutrader   |   Latest post: Mon, 25 Mar 2019, 12:55 PM

 

Malaysia Airports Holdings - March’s Passengers Traffic Snapshot

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In March 2018, total passenger registered growth of 6.9% YoY-YTD, in line with our 8.5% forecast. No change to our FY18-19E CNP. Maintain MP with an unchanged TP of RM8.45 based on 1.72x FY18E PBV.

March traffic in line. March 2018’s passengers (including ISG) registered growth of 6.9% (+3.6% for Malaysian operations, +18.6% for Turkey operations) YoY-YTD which we deem as in line with our total growth forecast of 8.5% (+8.0% for Malaysian operations, +10.0% for Turkey operations). We are expecting Malaysia operations to pick up (i) as the general election is around the corner, (ii) coupled with the increased domestic routes by AirAsia on the back of an expanded fleet of planes.

Malaysian ops review. For March, passenger in Malaysia increased 4.0% YoY. International passengers were up 11.9% while domestic ones decreased 3.5% YoY. We believe the overall increase in international traffic was due to participation of new airlines (Tiger Airways) and introduction of new routes by existing airlines. Meanwhile, the decline in domestic demand was due to reduced capacity from Malaysia Airlines and Malindo as they rationalised their capacity allocations.

KLIA traffic. In March, KLIA Main registered negative growth of 1.2% YoY with international passenger registering a positive growth of 7.4% while domestic traffic contracted 26.2%. KLIA Main International growth was supported by increased seat capacities of airlines and stronger travel demand while the domestic contraction was due to reduction in capacity by local airlines, i.e. Malaysia Airlines, Firefly and Malindo Air as explained above. KLIA 2’s positive traffic growth continued, at 14.0% YoY (international: 11.9%; domestic: 18.1%), which we believe is attributable to strong growth from AIRASIA and AAX as they increased their capacities through higher plane utilisation along with higher number of planes.

Turkey operations. ISG Airport’s passenger growth for March registered strong YoY growth of 15.2% (international +15.2%, domestic +15.2%) as they recovered from the negative streak of events, which shook Turkey in early FY16. We expect the positive trend to continue.

Outlook. The anticipated QoS (Quality of Service) framework to be implemented by MAVCOM from 3Q18 for airports (starting with KLIA1 and 2) with objectives to achieve higher quality of service for passengers could pose as downside risks for AIRPORT’s earnings given that MAVCOM has proposed a financial penalty of up to 5% of aeronautical revenue, which could dent our FY18E CNP by 7% for every 1% penalty. That said, in order to mitigate penalties, AIRPORT has increased their planned CAPEX to RM600-700m (from typically RM300m) in FY18-19E to upgrade their infrastructure, i.e. trains, baggage systems and toilets.

Earnings unchanged. Post review, we maintain FY18-19E earnings.

Maintain MARKET PERFORM with an unchanged TP of RM8.45. Our TP is based on PBV of 1.72x PBV which is pegged at +0.5SD to its 2-year average. We believe our applied +0.5SD level is reasonable given: (i) the positive 2-year concession extensions at ISG along with the recovery of passenger traffic, and (ii) PSC equalization at KLIA 2 from FY18 premised on better earnings prospects from AIRASIA’s strong expansion. Risks to our call include: (i) lower-than-expected passenger growth, and (ii) epidemic/terror attacks.

Source: Kenanga Research - 11 Apr 2018

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