Highlights/ Comments

MAHB released its preliminary April statistics, showing strong passenger movement growth of +11.2% yoy in April and +16.6% yoy in Jan-April period, contrary to market concern about possible slump in passenger movement, following the MH370 incidents in Mar.  

There were news and reports on the declines in traffic and cancellation of flights connecting to China that started in April month itself. We believe that the potential full impact of MH370 can only be judged in May.

However, we expect the affected airlines to re-deploy their fleets into other flight destinations (ex-China) to ensure high fleet utilization. Attractive fares and packages will also be offered to ensure high load factors.

Hence, we are not overly concern on the impact of MH370, as MAHB will continue to collect airport charges and earn non-aeronautical revenue from the high passenger movements (regardless the destinations of passengers). We maintained our assumption of +12.8% yoy passenger growth vs. ytd’s +16.6% yoy.

The commencement of KLIA2 in May, will further enhance MAHB’s non-aeronautical revenue as well as boost traffic growth with airlines increasing capacity (routes and frequency). KLIA2 migration has commenced smoothly.

Risks

World crisis (i.e. war, tourism and epidemic outbreak); Development of high speed train between Singapore and Pulau Pinang; Major movement of airlines from KLIA to KLIA2.

Forecasts

Unchanged.

Rating

BUY

Positives – 1) Monopoly of airports operation in Malaysia (except Senai); 2) Main beneficiary of strong air traffic into Malaysia and VMY 2014, in line with government initiatives to boost tourism sector; 3) Unaffected by high jet fuel cost and RM depreciation; and 4) Potentially higher nonaeronautical revenue.

Negatives – 1) Low liquidity.

Valuation

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

Source:Hong Leong Investment Bank Research- 15 May 2014