Highlights/ Comments

MAHB reported commendable passenger traffic growth of 12.6% yoy in Mar 2014, despite various concerns on the grave impact of MH370 (8 March 2014) towards air travelling demand (especially from tourism perspective).

Nevertheless, the growth has slowed from 25.8% yoy in Jan 2014. MAHB clarified that the lower growth was towards the last 10 days of March. Hence, we expect lower growth in Apr 2014, before potential rebound in the following month, as can be seen with past incidents. For 1Q14, MAHB achieved passenger growth of 18.3% yoy, significantly higher than our assumed 11.4% yoy and MAHB targeted 9.7% yoy for FY14. Hence, we do not discount the possibility of MAHB out-performing our expectations, especially with the commencement of KLIA2 on 2 May 2014.

The delay in AirAsia Group moving into KLIA2 (not expected to be prolonged) will not affect our valuation on MAHB.

Similarly, ISGA (MAHB increasing stake to 60% from 20%) reported passenger growth of 40% yoy in 1Q14, outpaced our conservative assumption of 28% yoy for FY14, due to the fast expansion of Pegasus Air (based in ISGA) and Turkish Airlines (dual hub strategy-utilizing ISGA to complement Ataturk).

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 sector i.e. VMY 2014.
• Unaffected by high jet fuel cost and RM depreciation.
• Potentially higher non-aeronautical revenue.

Negatives –

• Low liquidity.

Valuation

Maintained BUY recommendation with unchanged target price of RM10.55 based on SOP (including 60% stake in ISGA).

Source: Hong Leong Investment Bank Research - 14 Apr 2014