Highlights/ Comments

Stronger-than-expected traffic growth ytd (Passenger +15.5% yoy; Aircraft +11.8% yoy) due to the aggressive strategies of AirAsia Group (including AirAsia X) and MAS as well as new entry Malindo. We now assumed Passenger growth of 17.0% yoy for 2013, as we expect continued 20% yoy growth for Sep-Dec period.

MAHB benefits from higher aeronautical revenue as traffic increased. The recent growth was mainly attributed to the growth of KLIA-MTB which charge higher passenger tariff. MAHB is also expected to revise the benchmark passenger tariff by 8-10% in the upcoming Feb 2014 tariff review. Any shortfalls from the benchmark will be compensated by the government under MARCS. MAHB is capitalizing on the high passenger number (captive market) to increase non-aeronautical income. Implementation of retail optimizing plan to increase commercial space and attract higher spending by passenger.

MAHB intends to development the land area surrounding KLIA, and transform the 22k acres land into a self-sustaining airport city dubbed KLIA Aeropolis. KLIA Aeropolis will contribute strong non-aeronautical income to MAHB. MAHB has established JV in ICT with WCT (30:70) and FOS with Mitsui Fudosan (30:70).

KLIA2 commencement by mid-2014 will further boost passenger growth. KLIA2 is developed to enhance nonaeronautical income, through higher allocation of commercial space and wide product offerings customized towards passenger preferences, after detailed studies on the demographic of passenger and their spending behavior.

The amortization period of KLIA2 remained an issue, but we remained optimistic on the concession period extension. MAHB is also applying for Investment Tax Allowance for KLIA2 to enjoy lower tax.

Risks

World crisis (i.e. 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

Increased FY13-15 earnings by 10.1%, 8.5% and 8.6% after accounting for higher traffic growth, higher non-aeronautical income and contribution from the JVs (ICT and FOS).

Rating

BUY

Positives –

• Monopoly of airports operation in Malaysia (except Senai)
• Main beneficiary of strong air traffic into Malaysia, in line with government initiatives to boost tourism sectors.
• Potentially higher non-aeronautical revenue.

Negatives –

• Low liquidity.

Valuation

Maintained BUY recommendation with higher target price of RM9.00 (from RM7.72) based on DCFE, following the revision in forecasted earnings

Source: Hong Leong Investment Bank Research - 8 Oct 2013