Highlights

New airline, Malindo Airways has commenced operations in KLIA since 22 March 2013, with over 70% passenger load factor. It’s longer term plan is to make Malaysia as a transit hub for Asia region, with a fleet of 100 B739ERs.

Recently, Malindo is speculated to start turboprop operations in Subang Airport. It is expected to receive the approval from DCA soon and commence operation by June.

MAS has received the last 2 Airbus 380s in Feb and Mar 2013. With the arrival of new aircrafts, MAS intends to increase capacity by 4-5% in 2013.

Through Oneworld Alliance, MAS is able to register stronger passenger load factor, as the national carrier taps into other allied airlines’ passenger demands and resources.

AirAsia is adding 10 A320s into Malaysia fleets increase flight frequency of existing routes in 2013, while maintaining its focus of achieving ~80% passenger load factor.

Some other airlines i.e. Turkish Airlines, Air France and Philippines Airlines are starting to fly into KLIA in Apr-May.

Comments

MAHB benefits from the increasing capacity of the airlines (i.e. MAS, AirAsia and Malindo), as well as new in-coming international airlines. MAHB will collect higher passenger tariffs and aircraft landing & parking charges, as well as nonaeronautical revenue (i.e. retail and commercial).

The expected commencement of KLIA2 by end June 2013, will significantly enhance MAHB’s revenue, enabling operating profitability within first year.

There are increasing risk of project delay and cost-overrun, which may affect our valuation. However, the impact is expected be minimal as we expect KLIA2’s revenue to offset the high startup cost, while the cost-overrun will be amortized over the subsequent concessionaire period.

The amortization rate of KLIA2 is still under discussion with the government and accounting body. We expect the issue to be sorted out by year end.

The strong passenger traffic will support MAHB’s long term vision to develop the surrounding area into an Aeropolis, complete with shopping malls, hotels, recreational parks, golf course, commercial and industrial areas.

Risks

World crisis (ie. war, tourism and epidemic outbreak), delay in KLIA2 completion, high jet fuel price and the development of high speed train between Singapore and Pulau Pinang.

Forecasts

Unchanged.

Rating

BUY

• Positives – 1) Monopoly of airports operation in Malaysia (except Senai); 2) Main beneficiary of strong air traffic into Malaysia, in line with government initiatives to boost tourism sectors; and 3) Potentially higher non-aeronautical revenue.
• Negatives – Low liquidity.

Valuation

• We remained positive with MAHB on strong passenger traffic. Maintained BUY with unchanged Target Price of RM6.52 based on DCFE.

Source: Hong Leong Investment Bank Research - 18 Apr 2013