Despite the negative impact from the prudent adjustments, MAHB still reported strong core 1HFY18 PATMI of RM182.3m (+93.5% YoY), within ours and consensus expectations. The growth was mainly driven by higher passenger traffic and improved passenger mix from International/ASEAN segments (higher PSC charges and spending/pax). We expect further earning improvements in 2H18 on seasonally stronger demand, while the decision on the right partner for ISGA may be concluded by end FY18. Recommended first interim dividend of 5sen/share. Maintain BUY with unchanged DCFE-derived TP of RM10.00.

Within expectation. Reported core PATMI of RM62.4m for 2QFY18 and RM182.3m for 1HFY18, achieving 43.1% of our FY18 forecast and 43.3% of consensus. We regard the earnings to be within expectation, as MAHB gains momentum in seasonally stronger 2H of the year.

Dividend. Recommended first interim dividend of 5sen/share.

QoQ. Core PATMI dropped 48.0% due to MAHB’s lower passenger traffic and deteriorated passenger mix from international/ASEAN (lower PSC and retail spending), as well as net negative adjustments of RM20m, following MAHB’s decision to prudently reverse 1HFY18 MARC PSC of c. RM41m in 2QFY18 and lower staff bonus payout of RM21m (write-back of bonus provision). On a positive note, MAHB recognised a strong investment gain of RM29m (from unit trust) in 2QFY18.

YoY/YTD. Core PATMI growth of 33.1% YoY and 93.5% YTD, mainly driven by overall higher passenger movement and improved passenger mix from international segment (including ASEAN) in both MAHB and ISGA.

MAHB (Malaysia). Despite the negative impact of the prudent adjustments (MARC PSC and staff bonus) in 1HFY18, MAHB still achieved strong EBITDA of RM700m (+12.6% YoY), hitting 57.7% of its internal KPI (key performance index) target of RM1.2bn for FY18. We expect MAHB’s EBITDA to improve further in seasonally stronger 2H18, potentially exceeding RM1.4bn (> KPI RM1.2bn).

New regulation. Details of new Operating Agreement (35-years extension until 2069), PSC charges, RAB, IBR are still in study and consultation phase. MAHB is engaging external consultants for advice on the best policies/practices. Government is targeting to implement RAB/IBR by 2HFY19 (at least on trial basis). Nevertheless, management will stand firm in protecting shareholders’ interest.

ISGA (Turkey). Management remained upbeat with ISGA performance after achieving continuous EBITDA improvement in 2QFY18 at RM202m, raising 1HFY18 to RM390m, on track to achieve its FY18 KPI target of RM881m. It has recently completed its capacity expansion to 41mpta. The recent depreciation of Turkish Lira also benefits ISGA on higher margin (revenue in Euro vs. operating cost in Lira). MAHB is still evaluating for the best partner for its ISGA venture, which we do not discount the decision to be concluded by end FY18.

Forecast. Unchanged as the Results Were Inline.

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

Source: Hong Leong Investment Bank Research - 29 Aug 2018