Highlights/ Comments

• MAHB’s Nov pax movement dropped 2.6% yoy , dragged by weak KLIA traffic, while KLIA2 traffic was relatively flat yoy (AirAsia has stopped adding capacity into the system since end 2013 and started to re -deploy ts fleet from domestic into international routes). YTD pax growth was +5.2% yoy, relatively inline with HLIB’s expected growth of 4.0% and MAHB’s internal guidance of +4.3% for FY14.

• Traffic from Middle East, China and Europe were in the decline territory, partly offset by strong growth from South Asia. MAHB guided for signs of traffic recovery from China.

• MAHB has also been awarded with a 3 (option +2) years contract for the provision of repair and maintenance services in Hamad International Airport, Doha, Qatar worth RM192m.

• We are positive on the contract award, which will enhance its bottomline in the short term, given that the contract may fetch up to 30% margins.

Risks

• World crisis (ie. war, tourism and epidemic outbreak); Cost overrun and operation disruption in KLIA2; Development of high speed train between Singapore and Malaysia; 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, in line with government initiatives to boost tourism sectors.
• Potentially higher non-aeronautical revenue.

Negatives

• Low liquidity; and
• Short-term impact on traffic following MAS mishaps.

Valuation

• We remain positive on MAHB’s long term earnings growth. Maintained BUY with unchanged TP of RM8.90 (based on SOP). Our TP will be adjusted to RM8.10 post the completion of acquisition and cash call.

Source: Hong Leong Investment Bank Research - 15 Dec 2014