Highlights/ Comments

• MAHB has officially launched its land development masterpl an dubbed “K LIA Aeropolis”, a long term vision to develop a self-sustaining airport city. KLIA has been given by the government a huge plot of land, measuring 22k acres, and MAHB has allocated 60% for ai rport development and the remaining 40% for land development (8.8k acres) – KLIA Aeropolis.

• KLIA Aeropolis focuses on: 1) Air Cargo & Logistics; 2) Aerospace & Aviation; and 3) MICE (Meetings, Incentives, Conferences & Exhibitions) & Leisure.
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• MAHB has also entered into agreements with KLAS, Raya Airways, AirAsia and Venderlande under Air Cargo & Logistic segment and RUAG under MRO segment (expected to fetch more than RM30m in lease income).

• We are positi ve on the masterpl an, which maps out MAHB’s long term commitment for growth. KLIA Aeropolis has been earmarked to transform KLIA into becoming a hub for businesses, travelers (including holiday makers), cargo, and aviation industry, which will further enhance MAHB earnings growth potential from both aeronautical (tariff and charges from higher throughput ) and non-aeronautical (commercial lease rentals, business revenue and profit shares, advertisements and retails).

• We note that KLIA has rooms for a capacity of 140mppa, which is double of current capacity of 70mppa, with the development of 2-3 new terminals and additional runway 4.

Risks

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

Forecasts

• Unchanged.

Rating

BUY

Positives

• 1) Monopoly of ai rports 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

• Maintained BUY with unchanged TP: RM7.50 based on DCFE.

Source: Hong Leong Investment Bank Research - 24 May 2016