Highlights / Comments

• In June, Malaysia traffic recorded a negative growth of 3.7% YoY, due to poor performance of MTB which recorded a decline of 9.3% YoY. (Dragged by month of Ramadhan; where Muslim observes fasting for 1 month). Istanbul ISGA pax movement recorded a double digit growth at 12.12%; bringing YTD to 16.59%. (HLIB’s estimate is 16.82%)

• China traffic continue to record double digit growth (due to low based) since May, and we expect this positive t rend to continue throughout remaining of the year. However, the ongoing turmoil coupled with Ramadhan has cause a slowdown in Middle East Traffic. 
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• MAS is still in the midst of route rationalization exercise, which may affect traffic coming into Malaysia. However, we are not overly concern on the exercise as air travelers may opt to travel with other airlines. Furthermore, the return of British Airways (End-May) and arrival of ANA Airways (3Q15) will provide more connectivity into Malaysia. 

• Despite weak June statistics (due to Ramadhan), we expect stronger traffic performance for the remaining of the year and maintained our traffic growth forecast of 4.9% YoY.

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

• Maintain BUY recommendation with unchanged target price of RM7.69 based on SOP