Highlights/ Comments

• Mitsui Outlet Park officially opened (soft launch) last week on 30th May 2015 with average spend of RM40. At the moment, 60% of the shops (total of 130 shops in phase 1) have started operation, with management guiding further 20% to commence by the grand opening ceremony in July 2015.

• Total project investment for MOP is RM335m (comprising 3 phases) which will be fully complete by 2021; upon completion, MOP will have a total rental space of 44,000sqm (250 tenants).

• MAHB will receive: 1) Land lease rental of RM4m – RM5m per annum; 2) Profit sharing of 5% of revenue (provided MOP achieves the minimum EBITDA threshold); and 3)

Dividend

• payout of 50% (from MAHB 30% stake in MOP).

• Malaysia traffic has seen improving sign with overall positive growth for April 2015 at +1.23% YoY). (After a run of 10 consecutive months of negative growth). Recently, MAS has mobilized route and capacity rationalization with termination of several routes, which represents 0.48% of total passenger movements.

• We do not expect any major impact from MAS capacity cuts on MAHB passenger in 2015 due; 1) Pressing issues of the staffs; 2) Potential passengers can travel with other airlines which give same (or similar convenience) connectivity.

• We remain optimistic with MAHB passenger movement growth and maintain our growth estimates at +4.9% as: 1) On-going promotion by AirAsia; 2) Commencement of new airlines (British Airways and All Nippon Airways); and 3) Travel recovery especially from China.

• Turkey has been experiencing double digit growth over the past few years, thanks to aggressive campaign by the government to promote local tourism industry.

• YTD ISGA recorded strong growth at +16.1% YoY, in-line with HLIBs estimates at +16.82% YoY. We remain optimistic with ISGA performance given Turkish Airlines and Pegasus Airlines ASK growth at +8% YoY and +18% YoY respectively.

Risks

• World crisis (i.e. war, terrorism, political unrest and epidemic outbreak); Development of high speed train between Singapore and Kuala Lumpur.

Forecasts

• We have consolidated ISGA numbers, and retained our MAHB and ISGA pax movement growth. Further, we also did some book keeping to better reflect the MAHB performance in 2015. Hence, we cut our earnings forecast for FY15 - 16 by 36.8% and 44% respectively.

Rating

BUY

Positives

• 1) Monopoly of ai rports operation in Malaysia (except Senai ); 2) Main beneficiary of strong ai r traffic, in line with government initiatives to boost tourism sector; 3) Unaffected by high jet fuel cost and RM depreciation; 4) Potentially higher non-aeronautical revenue; and 5) Concession extension.

Negatives

• 1) Low liquidity & 2) Airline crisis (cut capacity).

Valuation

• MAHB remains a BUY albeit lower target price (post earnings cut largely mitigated by inclusion of ISGA) of RM7.69 (from RM7.70) based on SOP.

Source: Hong Leong Investment Bank Research - 10 Jun 2015