Highlights/ Comments

• MAHB has been continuously reporting passenger movement growth of above +5.0% yoy since mid-2016 (Malaysia operation). We expect the positive trend to continue in 2017, driven by growing tourist arrivals and resilient air travel demand by locals as well as capacity expansion by major Malaysia based airlines.
• MAHB is targeting passenger movement growth of +6.5% for 2017, which we believe is achievable with upside potential.
• Under its second 5-year strategic plan Runway to Success 2020, MAHB is transforming the surrounding land of KLIA/KLIA2 into KLIA Aeropolis, leveraging on strong passenger traffic growth (from current 52mppa to 100mppa by 2030).
• For the past few years, there were several developments in areas surrounding KLIA (i.e. Nilai, Sepang, Dengkil, Cyberjaya, Putrajaya and Enstek), which will increase the population within the area. Furthermore, the connectivity to KLIA Aeropolis has been continuously improved through road, rail and land. The proposed new highways – MEX extension, WCE and SKLIA Expressway will all be linked to KLIA Aeropolis.
• MAHB initial commercial initiatives in JVs – KLIA2 Gateway and Mitsui Outlet Park have started to contribute positively to MAHB’s bottomline in FY16, through lease income, share of profit and concession fee. In mid-2016, MAHB had also entered into outright land lease agreements with several logistic and MRO players, which are expected to contribute positively to MAHB by FY18.
• Despite the recent slowdown in ISGA traffic, management remains optimistic on ISGA long term growth. Management is spending €20m capex to expand the terminal capacity to 41mppa by 2018 (from current 33mppa), as current utilization already achieved 90%. We are not overly concerned on the recent downturn of ISGA, as ISGA has strong operational cashflow and is self-sustaining, without the need of financial assistance from MAHB.

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 ↔

• MAHB is expected to be the major beneficiary from the recovery of air travel demand in Malaysia as well as on- going land development initiatives (under KLIA Aeropolis Masterplan). However, near term outlook will be dragged by the weak ISGA performance.

Valuation

• We maintain our BUY recommendation with unchanged TP RM8.60 based on DCF.

Source: Hong Leong Investment Bank Research - 16 Mar 2017