Results

• Below Expectation - Reported core profits of RM46.9m for 2Q17 and RM91.7m for 1H17 (excluded distributions to Sukuk holders RM25.4m and deferred tax gain RM33.4m for ISGA & LGM), achieving 30.7% of HLIB FY17 forecast and 37.1% of consensus.

Deviations

• Adjustments of RM25m lower rental income (backdated to 1Q17) from Setur Duty Free to ISGA in 2Q17 (lower guaranteed spending/pax from EU€13.15 to EU€9.50, but with higher percentage revenue sharing of 46.5% from 41.5%) and losses from oversea repair and maintenance.

Dividends

• Proposed interim dividend of 5 sen/share.

Highlights

• YoY: Group bottom line jumped to RM46.9m in 2Q17 (from RM6.0m in 2Q16) due to strong group pax growth (+10.8%), improved passenger mix and lower depreciation charges for Malaysia operation, which was partially offset by adjustment of lower rental income by RM25m from Setur Duty Free.

• QoQ: Group core earnings improved slightly from 3Q17, mainly on lower losses from ISGA & LGM operations (lower depreciation and finance charges), which was offset by lower income from Malaysia operations (adjusted higher staff and maintenance costs).

• 1H17: Group’s core earnings improved to RM91.7m (vs. RM11.0m in 1H16) on the back of improved utilization of MAHB and ISGA, as well as adjustment on depreciation charges, despite the higher operational costs.

• Malaysia: Expect continued earnings improvement from Malaysia operations, leveraging on the recovery in growth of air travel demand in 2017. Airlines (especially based in Malaysia) have been increasing frequency and connectivity since mid-2016, benefitting MAHB passenger flow and improve both aeronautical and non-aeronautical revenue.

• Turkey: Post adjustment on lower rental income from Setur Duty Free, ISGA earnings had been affected by EU€5m in 1H17, which would further drag ISGA turnaround plan. Nevertheless, ISGA remained confident on the longer term recovery of international passenger and spending/pax, given the agreed higher percentage of income to 46.5% (from 41.5%), as traffic has shown positive growth.

Risks

• World crisis (ie. war, terrorism and epidemic outbreak), shutdown of airport terminals and the development of high speed train between Singapore and Pulau Pinang.

Forecasts

• Cut FY17-19 earnings by 12.1%, 7.7% and 5.5% respectively mainly on lower ISGA rental revenue.

Rating

BUY ( ↔ )

• MAHB is expected to be the major beneficiary from the growth of air travel demand in Malaysia as well as on-going land development initiatives (under KLIA Aeropolis Masterplan). The recovery of ISGA traffic in recent months will improve ISGA outlook and monetizing of ISGA investment will unlock ISGA valuation.

Valuation

• We maintain our BUY recommendation with lower TP: RM9.60 (from 9.80) based on DCFE.

Source: Hong Leong Investment Bank Research - 1 Aug 2017