Period     1QFY13/3MFY13

Actual vs. Expectations     1Q13 core net profit of RM126.1m in made up 34% and 35% of ours and the street estimates respectively. We deem the results to be within ours and the street expectation as the earnings is likely to ease off in 2HFY13 due to the absence of construction profits. Note that in 2Q13, we do expect heavy construction recognition as KLIA2 is targeted for completion in Jun-13, implying 1H13 will dominate most of the full-year earnings.

Dividends      No dividend was announced for the quarter as expected.

Key Results Highlights      QoQ, AIRPORT’s core net profit improved by 26% to RM126.1m. Revenue did fall by 23%, QoQ to RM1027m due to lower construction revenue recognised. However, this was negated by an improvement in its associates where it recorded a lower losses of RM0.3m (>100%, QoQ) and lower effective tax rate of 32% from 4Q12’s 42%.

YoY, its revenue increased 56% from RM657.7m to RM1027.2m as a result of a higher recognition of construction profit coupled with 8.7% increase in total passenger movements. However, its core net profit only increased marginally by 4% to RM126.1m due to higher staff costs, as well as, depreciation and amortisation cost due to the capitalisation of new projects, which included the Airport Cooling Plant and Baggage Handling IT System.

Outlook      Going forward, we are upbeat on AIRPORT’s long term outlook and expect a stronger rebound in its FY14E earnings from future contribution of retails and rental income from KLIA2.

Change to Forecasts     No changes to FY13-14E earnings.

Rating     Maintain OUTPERFORM

MAHB is our 2Q13 Top Pick for the Aviation industry on the back of diversified earnings arising from KLIA2’s new contributions and better airport traffic from increasing competition between low-cost carriers.

Valuation     Higher TP of RM7.19 (from RM6.12) as we roll forward FY14E valuations to FY14E which implies a higher SOP.

Risks     A significant drop in passenger numbers due to catastrophic events.

Source: Kenanga