Highlights/ Comments

• Total KLIA and MASB passenger movement rose slightly to 1.2% yoy (which is commendable in view of high base), with marginal decline for international pax at -3.0% yoy (Feb at - 4.0% yoy) and a single digit growth from domestic pax at 5.0% yoy. These commendable numbers were backed by school holidays as well as Formula 1 event.

• Istanbul SGIA recorded a strong double digit growth at 18.4% yoy (in-line with HLIB’s assumption of 16.82%). This boosted MAHB’s system March pax movement to 4.4% yoy.

• Management guided that local airlines have seen significant improvement in international pax movement in March. (international pax gaining momentum)

• China sector remained negative with double-digit decline, as well as Middle East with ongoing turmoil causing mid-singledigit decline.

• We expect GST implementation on 1st April to cause a slight dent in pax movement from the locals as consumer will be more prudent in managing their finances.

• Nonetheless, we remained optimistic on MAHB with British Airways returning in May and Nippon Airways in September providing more traffic for Malaysia Aviation sector.

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 t raffic 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 RM7.70 based on SOP.

Source: Hong Leong Investment Bank Research - 13 Apr 2015