Results

Deviations

• Higher than expected depreciation and amortization charges, given the additional adjustments under UEP method in 4Q15.

Dividends

• Declared final net dividend of 4.5sen. Total dividend for FY15 was 8.5sen, higher than HLIB’s expectation of 8.0sen and consensus 5.6sen. Expect higher dividend payout in FY16 as MAHB capitalizes on improving cash flow and minimal capital expenditure.

Highlights

• FY15 saw MAHB full year consolidation of the operation of ISGA (including LGM), which has caused MAHB to report core losses of RM3.6m due to non-cash amortization cost of RM182.2m recognized. Excluding the amortization cost, MAHB group would have reported relatively stable earnings at RM178.6m in FY15 vs. RM184.4m in FY14, despite the restructuring of MAS (drastic capacity cut).

• MAHB revenue was up by 10.1% yoy to RM2.9bn (ex ISG & LGM and Construction), higher than passenger movement growth of +0.5% yoy, driven by higher PSC MARCS, lower airlines incentive and higher retail & commercial income. Nevertheless, net profit dropped slightly to RM161.4m in FY15 vs. RM184.4m in FY14, on higher depreciation cost and lower effective PSC charges (movement of passenger from KLIA to KLIA2).

• For FY16, MAHB expects the recovery in China sector (double digit growth) and movement of Malindo operation to KLIA from KLIA2 to contribute positively in FY16.

• ISG & LGM contributed RM920.2m revenue with net profits of RM17.2m, thanks to RM40.7m tax writebacks on ISG PPA deferred tax assets. 

• ISGA is expected to maintain double digit passenger growth momentum in coming years, which will improve its core earnings and contribute positively to MAHB group.

Risks

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

Forecasts

• Cut earnings for FY16 by 20.8% and increase FY17 earnings by 20.4% to account for higher D&A charges as well as higher contribution from ISGA-LGM.

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 RM depreciation; and 5) Potentially higher non-aeronautical revenue.

Negatives

• 1) Low liquidity.

Valuation

• We maintain our BUY recommendation with higher TP of RM6.80 (from RM6.30) based on DCF, post stronger cashflow adjustments.