Results

• Below expectation – Reported 4Q14 core result of minor losses RM0.8m and FY14 core profit at RM132.2m, below our expectations of RM153.0m but in-line with consensus’ RM127.5m.

Deviations

• The deviations mainly attributed to lower than expected retail revenue and earnings.

Dividends

• None.

Highlights

• MAHB FY14 revenue (ex-construction) increased by 8.9% yoy mainly from passenger growth of 4.7% yoy, passenger tariff adjustments of +10% (recognized under MARCS), aircraft landing and parking charges by +10%.

• However, MAHB core earnings (ex-construction) dropped 64.8% yoy due to higher operational cost, depreciation charge and net interest expense related to the commencement of KLIA2 in May 2014.

• MAHB has changed its depreciation methodology from Straight Line to Unit of Production in 4Q14, to better reflect the utilization of KLIA2 assets. It reported +RM101.1m adjustments in depreciation charges in 4Q14. For FY15, management expects depreciation to increase to RM500m (from RM405m in FY14), from improved asset utilization.

• MAHB has completed the acquisition of the remaining 40% stake of ISGA in Jan 2015, which MAHB has recognized net investment revaluation gain of RM628.3m (after including impairments and related acquisition expenses).

• ISGA continued to report lower losses at EU23.4m in FY14 vs. EU55.1m in FY13, as passenger traffic increased 25.4% yoy. For FY15, MAHB is targeting breakeven or even profits from continued traffic improvement of 15% and lower interest cost of EU24m (from debt restructuring).

Risks

• World crisis (i.e. 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

• We maintained earnings for FY15-16, as remained upbeat on the MAHB earnings rebound in FY15-16.

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; and
• Potentially higher non-aeronautical revenue.

Negatives

• Low liquidity; and
• Short-term impact on traffic following air incidents.

Valuation

• We remained positive on MAHB’s long term growth potential. We have not included the potential upside from concession extension and passenger tariff revision for KLIA2. Maintained BUY with unchanged target price of RM8.30 (RM7.70 ex-rights).

Source: Hong Leong Investment Bank Research - 16 Feb 2015