Highlights/ Comments

• MAHB share price has been negatively affected (dropped by 4%) by a terrorist attack incident in Turkey main airport – Istanbul Ataturk Ai rport (IAA), which caused 41 deaths and 239 injuries. We understand that IAA operations are al ready back to normal, with few flights being diverted to other airports including Istanbul Sabiha Gocken Airport (ISGA). Security forces have also been increased at ISGA.

• Major concerns include the safety of MAHB wholly owned ISGA and lower pax traffic flows in ISGA (potentially lower tourist visits). Governments around the world have al ready issued travel advisories on Turkey since earlier of the year, given the ongoing terrorist attack incidents.

• Terrorist attacks in Turkey had heightened in 1H16 with 8 bombing incidents (including latest in IAA). ISGA pax traffic growth has slowed to 10% yoy for Apr-May’16 vs. previous trends of +15-25% yoy. We expect continued short term blip on pax movement given the adverse tourism sentiment on Turkey, before a potential recovery by 2017 (provided no continuous terrorist attacks during the period).

• MAHB commenced its concession in ISGA back in 2008 with only 20% stake prior to becoming full subsidiary in 2015. ISGA has been showing improving earnings trend for the past years as utilization improved (from increasing pax traffic). The latest bombing incident is likely to drag ISGA targeted earnings turnaround in 2016 to 2017.

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

• Despite the short term impact on ISGA, we remain positive on MAHB’s earni ngs potential mainly on the recovery of ai r travel demand in Malaysia and KLIA Aeropolis development as well as potential tariff adjustments and concession extension. Maintain BUY with unchanged TP of RM7.50 based on DCFE.

Source: Hong Leong Investment Bank Research - 30 Jun 2016