Highlights/ Comments

• MAHB’s system Jan pax movement dropped by 4.6% yoy, primarily due to weaker KLIA and MASB traffic at -5.7% and -2.9% respectively. This was due to high based in 2014 and QZ8501 which affected short term demand.

• Newly consolidated Istanbul SGIA (consolidated in 2nd January 2015) recorded strong double-digit growth of 17.2% which is in-line with airline’s capacity offered growth at 17.1%, translating to 82% average load factor. This is in-line with our Istanbul SGIA forecast of 16.82%.

• KLIA domestic aircraft movement declined by 4.5% while KLIA international aircraft movement grew by 7.1% (In tandem with airlines plan to shift focus from domestic to international routes).

• Despite the low volume for January stats (due to high base and partially by QZ8501), we maintained our forecast of +4.9% pax growth for 2015, as we expect stronger growth in 2H15.

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 air incidents.

Valuation

• Maintained BUY with unchanged target price of RM8.30 (RM7.70 ex-rights) based on SOP.

Source: Hong Leong Investment Bank Research - 11 Feb 2015