Highlights/ Comments

• In May, Malaysia traffic recorded a positive growth of 5.6% YoY, with MASB Airports at 8.6% YoY and KLIA at 3.4% YoY. ISGA pax movement growth remained robust in May (despite General Election in Turkey) at 23.1% YoY and YTD at 17.7% YoY (vs. HLIB’s assumption of 16.8% YoY).

• After consecutive months of negative growth post MH370 (March 2014), China sector has finally rebounded with strong 15% YoY (partly due to low base).
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• On the recent Sabah earthquake, the impact on ai r travels is yet to be seen. We do not expect significant impact on MAHB traffic in the longer term as the earthquake is a rare occurrence in Malaysia.

• On MERS issue, Malaysia has not imposed flight bans on South Korea routes. However, the authority is making efforts to detect symptoms of MERS at all int’l airport. We do not anticipate significant impact on MAHB traffic.

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.

Negatives

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

Valuation

• We remain positi ve on MAHB’s growth outlook (substantiated by May positive growth). Maintain BUY recommendation with unchanged target price of RM7.69 based on SOP.

Source: Hong Leong Investment Bank Research - 11 Jun 2015