Results

• Below expectations - Reported 2Q15 core net losses of RM17.2m, dragged down 1H15 core losses to RM49.2m and below ours and consensus estimates.

Deviations

• Lower than expected passenger movements resulted in lower PSC charge, higher than expected staff cost and finance cost.

Dividends

• Declared Interim dividend of 4 sen.

Highlights

• Revenue went up 13% YoY (ex ISGA) on the back of higher contribution from rental and royalties, and retails YoY (fully operated KLIA2 in FY15 compared to FY14). ISGA revenue also recorded a growth of 20% QoQ despite June General Election in Turkey.

• MAHB recorded a higher operating cost YoY due to: 1) higher provision of bonus recognized in 2Q15; 2) increase in direct cost (increase in the number of retail outlets in KLIA2 compared to LCCT) and; 3) higher maintenance cost related to larger size of KLIA2.

• On the bright side, ISGA recorded its maiden profit of EUR2.4m (RM10.1m) and we expect this trend to continue.

• Further, MAHB has allocated around RM350m Capex (higher than normal capex of RM250m) for 2015 for Malaysia operation which includes provision for the land settlement repair work in KLIA2. It also noted that it will takes a few years for the ground to settle.

• On the potential concession and PSC tariff revision, the final decision is still pending confirmation from the Aviation Commission of Malaysia.

• Management is conservatively optimistic that MAHB would be able to achieve its passenger traffic target of 3% YoY (on the back of longer school holidays, return of British Airways and Malaysia Year of Festivals). We concur it is within achievable target considering 3Q and 4Q are seasonally stronger quarters.

Risks

• World crisis (ie. war, tourism and epidemic outbreak), delay in the completion of KLIA2 and the development of high speed train between Singapore and Pulau Pinang.

Forecasts

• Cut earnings for FY15-17 by 42.7%/15.3%/7.8% due to lower traffic forecast from 4.9%/5.3%/4.9% to 2.5%/6.1%/5.7%

Rating

BUY

Positives

• 1) Monopoly of airports operation in Malaysia (except Senai); 2) Main beneficiary of government initiatives to boost tourism; 3) Concession extension for another 35 years to 2069; 4) Unaffected by high jet fuel cost and RM depreciation; and 5) Potentially higher non-aeronautical revenue.

Negatives

• 1) Low liquidity; and 2) High start-up cost on KLIA2.

Valuation

• Despite the weak 1H15 performance, we remained positive on MAHB long term growth, and maintained BUY on MAHB with marginally lower target price of RM7.40 (previously RM7.69) based on SOP.

Source: Hong Leong Investment Bank Research - 31 Jul 2015