Results

Largely in line - Reported 3Q13 core net profit of RM97.7m, taking 9M13 core profit to RM318.1m (exconstruction), which is 70.6% of HLIB’s FY13 forecast. We expect stronger earnings in 4Q on seasonal peak air travel demand. In FY11-FY12, 4Q accounted for 27% of earnings.

Deviations

None.

Dividends

None.

Highlights

Core Revenue (Ex-Construction) increased to RM615.5m (+14.7% yoy; +4.1% qoq) in tandem with passenger traffic growth but partially offset by the higher airline incentive provision of RM22.5m in 3Q13. The provision for FY13 is expected to increase to RM70m (from RM60m) in view of the stronger than expected traffic growth.

Recognized government user fee expense of RM60.9m in 3Q13, lower than 2Q13’s RM82.4m due to one-off expenses of RM27m related to MARCS ERL in 2Q13. (MARCS – Marginal Cost Support).

With Operating Agreement 2009, MAHB is expected to increase passenger tariff by 10-11% on 12 Feb 14. Any shortfall from the targeted increase will be compensated under MARCS.

KLIA2 development is nearing completion, with targeted ORAT (Operational Readiness and Airport Transfer) to start by end Jan 14 and will take at least 3 months for completion before commence of operation by early May 14.

KLIA2 is expected to be EBITDA positive (margin at 50%) within 1st year of operations, given the high utilization rate of more than 50%. LCCT is expected to reach 22m pax in FY13 vs. KLIA2 capacity of 45m pax.

There is a concern on airlines transferring from KLIAMTB to KLIA2 due to the lower passenger tariff charges in KLIA2 (competitive advantage). Management has assured that the risk is minimal given airlines will have less exclusivity in KLIA2.

Risks

• World crisis (ie. war, tourism and epidemic outbreak)
• Delay in the completion of KLIA2
• Development of high speed train between Singapore and Pulau Pinang.
• Major movement of airlines from KLIA to KLIA2.

Forecasts

Unchanged.

Rating

BUY

Positives –

• Monopoly of airports operation in Malaysia (except Senai)
• Main beneficiary of strong air traffic into Malaysia and 2014 Budget, in line with government initiatives to boost tourism sectors.
• Potentially higher non-aeronautical revenue.

Negatives –

• Low liquidity.

Valuation

Due to GoM’s budgeted 1% cut on corporate tax rate to 24% in 2016, we have increased our TP to RM9.25 (from RM9.00) based on DCFE valuation.

Source: Hong Leong Investment Bank Research - 1 Nov 2013