Results

• Within Expectations - Reported core profit of RM84.3m for 3Q17 and RM175.9m for 9M17 (excl. EIs, distributions to Sukuk holders RM43.0m and deferred tax gain RM10.6m for ISGA & LGM), achieving 64.6% of HLIB FY17 forecast and 68.5% of consensus.

Deviations

• We deem the results to be in line as we expect continued strong earnings for 4Q17 in view of the seasonally peak travelling demand in the quarter for MAHB (partially offset by seasonally weaker travelling demand in ISGA).

Dividends

• None.

Highlights

• YoY: Group bottom line jumped to RM84.3m in 4Q17 (from RM3.9m in 3Q16) due to strong group pax growth (+12.7%), improved passenger mix, lower depreciation charges for Malaysia operation and turnaround of ISGA/LGM to record PBT EU€4.6m (but still negative after taking into account of non-cash consolidation adjustment of RM63.5m).

• QoQ: Similarly, group core earnings improved by 79.8%, mainly on stronger traffics and turnaround of ISGA/LGM operation in 3Q17.

• 9M17: Group’s core earnings improved to RM175.9m (vs. RM13.6m in 9M16) on the back of improved utilization of MAHB and ISGA (turnaround in 3Q17) as well as adjustment on depreciation charges.

• Malaysia: Expect continued earnings improvement in Malaysia, leveraging on the healthy air travel growth. Airlines (especially based in Malaysia) have been increasing frequency and connectivity especially on international routes, benefitting MAHB passenger flow and improving both aeronautical and non-aeronautical revenue. The development of KLIA-Aeropolis is expected to further enhance MAHB earnings in the longer term.

• Turkey: Despite the adjustment on lower rental income from Setur Duty Free, ISGA had successfully turned around in 3Q17 with PBT at EU€2.1m on the back of recovery in traffic flow (especially from international segment). Furthermore, LGM continued to report positive earnings with PBT at EU€2.6m. The capacity expansion of 8mppa is expected to complete by 2018 with budget of EU€25m (financed internally by ISGA), supporting future growth.

Risks

• World crisis (i.e. war, terrorism and epidemic outbreak), shutdown of airport terminals 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 DCFE.

Source: Hong Leong Investment Bank Research - 27 Nov 2017