Highlights/ Comments

• MAHB continued to report positive passenger growth of 12.3% yoy in Sep 2016 for Malaysia operation, mainly due to low base effect (MAS cutting capacity in Aug 2015 under major restructuring exercise) as well as recovery of air travel demand. KLIA-MTB recorded highest growth on the back of movement of Malindo Air into the terminal (from KLIA2) since March.

• MAHB reported that Malindo Air registered growth of 50% yoy, while AirAsia and MAS registered growth of 10%
• MAHB: We are positive on the recent surge in passenger traffic growth, which will support MAHB’s earnings growth in 2H16. The higher growth at KLIA-MTB will also augment MAHB’s bottomline. YTD, MAHB’s passenger growth was 4.4% yoy, above our expectation of 2.6% yoy. We believe there is potential earnings upside to our forecast, given the expectation of sustainable strong passenger growth in 4Q16. We note that tariff revision exercise (by Jan 2017) will be neutral to MAHB.
• AirAsia: MAHB’s statistic also depicts healthy passenger growth for AirAsia of 10% yoy. On top of the growth, AirAsia also benefits from higher load factor, higher ancillary income and lower jet fuel costs, which will expand its margin in upcoming quarters. We note upcoming tariff revision will have relatively muted impact on to AirAsia.

Risks

• World crisis (ie. war, tourism and epidemic outbreak), shutdown of KLIA2, surge in jet fuel price and development of high speed train between Singapore and Pulau Pinang.

Forecasts

• Unchanged.

Rating

Overweight

• Positives – 1) Government initiatives to boost tourist arrivals; 2) Liberalization of ASEAN open sky policy; 3) Implementation of AEC; and 4) Low jet fuel cost.
• Negatives – 1) Air incidents; and 2) Weakened RM.

Valuation

• Maintain BUY on AirAsia with unchanged TP of RM3.85 based on SOP.

• Maintain HOLD on MAHB with unchanged TP of RM6.70 based on SOP, with potential upside revision on stronger earnings.

Source: Hong Leong Investment Bank Research - 19 Oct 2016