Highlights/ Comments

• Prime Minister Najib and Jack Ma (Chairman of Alibaba Group) have jointly launched Electronic World Trade Platform (eWTP) in Malaysia along with Digital Free Trade Zone (DFTZ) based in KLIA Aeropolis. DFTZ will function as physical and virtual zones to help SMEs take advantage of the internet economy and cross-border E-Commerce activities, giving support to internet companies to trade goods, provide services, innovate and co-create solutions.

• DFTZ is part of the strategy for the plan to double Malaysia’s E-Commerce growth, in order to increase GDP contribution to RM211bn by 2020. DFTZ has the potential to double SME goods exports by 2025, and support an estimated US$65bn worth of goods moving through DFTZ.

• The initiatives involve four primary areas: 1) E-fulfilment hub – logistic hub for imports and exports; 2) E-service platform – enable on-line and efficient trades; 3) E-payment and financing – facilitate trades; 4) E-talent development – develop startups and skillsets.

• During the launch, MAHB had signed MOU with Cainiao Network (a logistics firm, 47% owned by Alibaba Group) for the development of a regional E-Commerce and Logistics Hub (under E-fulfilment hub area) in KLIA Aeropolis by end 2019, with operations to be led by Cainiao and Lazada (wholly owned by Alibaba Group).

• The initial phase of E-fulfilment hub (to be rolled out before end of 2017) will be utilizing existing KLAS warehouse facility in KLIA, before a new proper hub facility being set up in KLIA Aeropolis by end 2019.

• The MOU is positive to MAHB, on accelerating the development of KLIA Aeropolis – Air Cargo and Logistics, which is being recognized DFTZ. We believe the initiative will attract strong demands from logistics players (domestic and international) for shares of land development earmarked under KLIA Aeropolis – Air Cargo and Logistics.

• Depending on the proposals, MAHB will either exercise outright lease or take share in the development (without capital cash outlays). We believe the required land size for the new E-fulfilment hub to be around 80 acres, which may fetch RM15-20m p.a. lease income to MAHB by 2020 (based on Mitsui Outlet Park contribution of RM8-10m p.a.).

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 - 23 Mar 2017