Results

• Below expectation – Reported 1Q15 core minor losses of RM30.9m, below our expectations for profit of RM316m and consensus RM224m.

Deviations

• The deviations mainly attributed to lower than expected traffic volume recorded in 1Q15 and recognition of amortization for fair value gain from SGIA+LGM acquisition.

Dividends

• None.

Highlights

• MAHB 1Q15 revenue (ex-construction) increased by 32.8% yoy to RM876.1m mainly due to inclusion of SGIA and LGM contribution. Malaysia revenue (ex -ISGA and LGM) was RM694.4m (+4.9% yoy), due to higher rental & commercial revenue (commencement of KLIA2 by May 2014).

• However, MAHB core earnings (ex-construction) dropped 122.8% yoy to –RM31.4m mainly due to higher KLIA2 operational cost (still under gestation period) and recognition of RM45.2m amortization cost (non-cash item) related to fair value gain (bargain purchase) from SGIA+LGM acquisition (valued at RM4bn).

• MAHB recognized one-off forex gain of RM63.4m in 1Q15 due to the translation gain on the outstanding EUR279m bridger loan (in financing SGIA+LGM acquisition)

• At SGIA level, it continued to report improved numbers with lower losses at EU7.3m in 1Q15 (vs. EU13.6m in 1Q14) as passenger traffic increased 16.63% yoy. Management remai n upbeat on SGIA’s earnings to breakeven in 2015 (given traffic is seasonally stronger in 2Q-3Q).

• Related to concession extension (upto +35 years), MAHB is still actively engage with Ministry of Transportation (MOT) and hopes to conclude the extension by end 2015. MAHB is relenting not to pay cash or increasing user fee (revenue sharing with the government) for the concession extension.

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

• Unchanged, pending review of our model to include SGIA and LGM numbers.

Rating

• Under Review
• 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; and
  • Potentially higher non-aeronautical revenue.

Negatives

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

Valuation

• At this juncture, we put our recommendation for MAHB under review (previously BUY with TP: RM7.70). Note that our valuation is derived from cashflow and not affected by the amortization of fair value gain from SGIA acquisition.

Source: Hong Leong Investment Bank Research - 6 May 2015