Highlights/ Comments

• We remain upbeat with MAHB outlook, given the reported on-going growth of passenger movement in 3Q17 in both Malaysia and Turkey operations.
• Malaysia: In 3Q17, MAHB registered a growth of +6.0% YoY and +3.4% QoQ for Malaysia passenger traffic. We note the slower YoY growth in 3Q17 (as compared to +12.9% YoY in 2Q17 and +10.1% YoY in 1Q17) was mainly due to high base effect in 3Q16 (see figure 1). In fact, passenger movement in 3Q17 was a record high for MAHB.
• Zooming into the numbers (see figure 2), 3Q17 growth was mainly driven by international travel, which is positive for MAHB, on higher tariff rates of RM35-73/pax and higher average retail spending/pax.
• Outlook for Malaysia operation remains encouraging with planned positive capacity addition by AirAsia Group (including AirAsia X) and Malaysia Airlines. According to AirAsia, the yield outlook remains firm, indicating demand outlook for travel is able to keep up with the additional capacity deployment in the system.
• On the other hand, the land development under KLIA Aeropolis initiatives is progressing well with earnings contribution starting in 2018.
• Turkey: In 3Q17, ISGA also continued to register positive recovery in passenger movements with +7.9% YoY and +15.3% QoQ (see figure 3). Similarly, the passenger movement in 3Q17 was a record high for ISGA, being driven mainly by international traffic (see figure 4).
• The recent visa spat between USA and Turkey is not expected to have any material impact on ISGA, given ISGA does not have direct flight connectivity into USA.
• Conclusion: We expect MAHB to continue report earnings improvement in upcoming 3Q17 result (expected early Nov), driven by stronger earnings in Malaysia operation and lower losses from ISGA.

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 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 unchanged TP: RM9.60 based on DCF. We view the recent share price retracement as good opportunity to accumulate.

Source: Hong Leong Investment Bank Research - 25 Oct 2017