Results

• Within Expectation - MAHB reported a core profit of RM44.8m (excluding distribution for Perpetual Sukuk and deferred RM17.1m tax gain for ISGA & LGM operations) for 1Q17, achieving 15.5% of HLIB’s forecast and 18.9% of consensus.

Deviations

• We deem the result in line with our expectations, given 1Q is a seasonally weaker travel season of the year. We expect accelerated earnings for upcoming quarters (MAHB peaks in 3Q and 4Q, while ISGA peaks in 2Q and 3Q).

Dividends

• None.

Highlights

• YoY: Group’s core bottom line was profitable at RM44.8m in 1Q17 (vs. RM5.0m in 1Q16) due to strong pax traffic growth (+10.1%) and adjusted lower depreciation charges for Malaysia operation, which was partially offset by higher RM denominated losses of additional RM35.7m yoy (excluding deferred tax gain) from ISGA and LGM. MAHB has started conservatively recognizing MARCS from pax tariff amounting to RM18.8m in 1Q17, being the differences of current PSC revenue and benchmark PSC revenue.
• QoQ: Group earnings declined from RM68.9m in 4Q16, mainly due to writeback adjustment on depreciation charges in 4Q16. Judging from the improvement in pax traffic mix, MAHB had actually achieved an unusual stronger revenue and earnings qoq (excluding adjustment in depreciations).
• Outlook: Expect continued earnings improvement from Malaysia operation, leveraging on the strong growth of air travel demand (especially on international traffic) in 2017. Nevertheless, management guided for higher staff costs (due to renewal of staff collective agreement in 2Q17) as well as maintenance costs (due to expiry of warranty period by contractors by 2Q17).
• ISGA has been witnessing improving traffics and increasing resumptions of flights in recent months, indicating potential recovery in 2017. Furthermore, management has guided no further write-off of deferred tax for ISGA in FY17 (vs. RM20- 30m in 2H16). ISGA is also in the midst of increasing capacity by 24% (current utilization rate at 90%) to 41mppa, positioning it to leverage on the recovery of air travel.

Risks

• World crisis (ie. war, terrorism 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), while ISGA is experiencing improving traffic.

Valuation

• We maintain BUY recommendation with unchanged TP of RM8.60 based on DCFE. We remain positive on MAHB outlook on the back of strong air travel growth in Malaysia and potential growth recovery in ISGA, as well as the long term growth from commercial land development Aeropolis.

Source: Hong Leong Investment Bank Research - 02 May 2017