MAHB reported strong PATMI of RM119.9m (+227.7% QoQ; +261.4% YoY) for 1QFY18, within HLIB expectations, but above consensus. The strong PATMI growth was mainly driven by higher passenger traffic and improved passenger mix from International and ASEAN segments, which fetch higher PSC charges and spending/pax. Earnings are expected to be sustainable with ISGA traffic peaking in 2Q-3Q while MAHB traffic peaking in 3Q-4Q. Decisions revolving new OA, PSC and IBR are likely to be delayed pending review with the new government, while MAHB will continue to strive for its rights for the shareholder interest. Maintain BUY with unchanged DCFE-derived TP of RM10.00.

Within expectation. Reported 1QFY18 core PATMI of RM119.9m (excluding distribution of RM14.3m to Sukuk holders), within HLIB FY18 forecast of RM422m, but above consensus of RM389m.

QoQ. Core PATMI growth of 227.7%, driven by improved MAHB passenger mix from International and ASEAN pax, which fetch higher PSC and retail spending, which was partially offset by lower associate/jv contributions and seasonally weaker traffic in ISGA.

YoY. Core PATMI growth of 261.4%, driven by overall higher passenger movement in both MAHB and ISGA as well as improved passenger mix from International and ASEAN segments.

MAHB. MAHB’s 1QFY18 EBITDA has been strong with RM393.2m, which already achieved 32.5% of its internal KPI (key performance index) target of RM1,211.1m for FY18. Barring unforeseen circumstances, management expect EBITDA to sustain or even improve especially toward 2H18 on seasonally higher traffic movement.

New regulation. MAHB is still actively engaging with MAVCOM, MoT and MoF on the finalization of new Operating Agreement (35-years extension until 2069) and PSC charges. Management expect final decisions to be delayed further given the recent change in government. The implementation of IBR (incentive base regulation) still relatively pre-mature with many perplexing arguments and assumptions. Nevertheless, management will continue to uphold MAHB’s rights in maintaining shareholders’ interest.

ISGA. ISGA’s 1QFY18 EBITDA of RM188.1m is relatively on track to achieve its KPI target of RM880.9m, given 1Q is relatively weaker quarter before peaking in 2Q and 3Q. Its capacity expansion plan is on track to complete by 3Q18 to meet the expected increase in passenger traffic. The recent depreciation of Turkish Lira also benefits ISGA on higher margin (revenue in Euro vs. operating cost in Lira). Nevertheless, there is still some political uncertain with regard to the upcoming general election in Jun 2018. The potential divestment of ISGA stake is likely to only take place post the election.

Forecast. Unchanged.

Maintain BUY, TP: RM10.00. We maintain BUY recommendation on MAHB with unchanged DCFE- derived TP: RM10.00. 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 has improved ISGA outlook and potential monetizing of ISGA investment will unlock ISGA valuation.

Source: Hong Leong Investment Bank Research - 30 May 2018