Results

• Below expectations - Reported 3Q15 core profits of RM39.6m, but 9M15 still recorded core losses of RM3.8m, which is below our forecasted FY15 earnings of RM115.5m and consensus RM79.0m.

Deviations

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

Dividends

• None.

Highlights

• Revenue went up by 8.8% YoY to RM735.1m (ex ISG & LGM and Construction) on the back of passenger growth of 5.7% YoY, contributing to higher aeronautical (airport charges) and non-aeronautical income (rental and retail). ISG &LGM also contributed to stronger revenue of RM282.8m for the seasonally peak travel quarter of the year and RM depreciation (denominated in EU€). MAHB recognized lower net airlines incentives of RM5.7m in 3Q15, after write back RM14.5m provided for FY14.

• Group EBITDA margin improved to 41.6% in 3Q15 due to consolidation of ISG & LGM operation. Looking at Malaysia operation alone, EBITDA margin improved slightly to 32.2% on improved passenger traffics (higher revenue).

• MAHB recorded lower net user fee charges of RM59.5m in 3Q15 (vs. RM72.9m in 2Q15 and RM67.3m in 3Q14), after writing back RM7.9m due to overprovision in previous periods. Furthermore, it has not accrued utilities expenses recoupment of ~RM25-28m from its tenants.

• ISG contributed net profits of RM43.8m for 3Q15 and RM44.1m for 9M15. However the net profits was offset by amortization of fair value of concession rights of RM51.7m for 3Q15 and RM142.4m for 9M15.

• The recent oil leakage has affected small parts of KLIA2 operation (non-material). Petronas is still investigating the issue. The cost to fix the leakage will be determined once Petronas finalize its investigation.

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 71.4%/19.6%/25.5% after imputing lower Malaysia passenger traffic growth.

Rating

BUY

Positives

• 1) Monopoly of airports operation in Malaysia (except Senai); 2) Main beneficiary 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

• We maintained our BUY recommendation with lower TP of RM6.30 (from RM6.79) based on DCF after we adjusted our model on lower passenger growth assumption.

Source: Hong Leong Investment Bank Research - 28 Oct 2015