Highlights / Comments

• Following recent terrorist attack incident in Turkey Atartuk airport (Jun 2016), Turkey has again been shocked with an attempted military coup on Friday night. Clashes happened in major city Istanbul and Ankara, which has left nearly 200 death and 1,000 wounded. Nevertheless, the military coup has failed and was apprehended by government forces by Saturday evening.

• According to MAHB, both Atartuk and Sabiha Gokcen airports have resumed operations but with heightened securities. Some flights have been reported to have diverted from Istanbul, while some have been cancelled.

• The incident will no doubt worsen worldwide concerns on the safety of travelling into Turkey, given the instability of the politic situation as well as terrorist threats. The passenger traffic flows (tourist flows) in ISGA will likely weaken and potentially fall yoy in coming months, after recording strong double digit growths for the past years.

• The initial expectation of ISGA turnaround by 2016 will be affected by the recent series of unfortunate incidents. Traffic recovery will be dependent on the stability of the government. Studying Thailand past political unrest by May 2014, tourist arrivals only recovered 6 months later by 4Q14 to experience growth of 20-40% in 1Q15-3Q15.

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

HOLD

• 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; and 4) Potentially higher non-aeronautical revenue.

• Negative – 1) Political unrest and terrorist threats in Turkey.

Valuation

We reckon the rising uncertainty in Turkey is affecting ISGA turnaround. We downgrade MAHB to HOLD (from BUY) with lower target price of RM6.90 (from RM7.50) on lower ISGA valuation by 30%. The event will exert pressure on MAHB’s short term outlook. We will review our recommendation when situation in Turkey shows improvements.

Source: Hong Leong Investment Bank Research - 18 Jul 2016