Thanks to change in tax treatment for KLIA2 in 3QFY18, MAHB reported strong PATMI at RM145.0m for 3QFY18 (+71.9%) and RM327.3m (+83.3% YoY) for 9MFY18. However, we deem the result within ours and consensus expectations, as we expect weaker PATMI in 4QFY18 on normalized tax and weaker ISGA performance. Maintain HOLD with unchanged DCFE-derived TP of RM8.00, given the heightened earnings risk under RAB and AREIT structure.

Within expectation. Reported core PATMI of RM145.0m for 3QFY18 and RM327.3m for 9MFY18, achieved 78.4% of our FY18 forecast and 72.0% of consensus. The strong 3QFY18 result was due to change in tax treatment for KLIA2, resulting positive tax credit for Malaysia operation. We regard the 9MFY18 earnings to be within expectations, as we expect tax expense for Malaysia operation to normalize back in 4QFY18 while ISGA operation to be seasonally weaker in 4Q18 (vs. 3Q18).

Dividend. None for 3Q18.

QoQ. Core PATMI increased by 132.5% due to change in tax treatment for KLIA2, resulting RM3.4m tax credit in the quarter. Comparing core PBT level, earnings improved by 21.9%, mainly driven by the seasonally stronger ISGA operation in 3Q for higher pax, improved pax mix and lower operational costs (Turkish Lira depreciated against Euro).

YoY. Similarly, Core PATMI increased by 71.9% on tax treatment for KLIA2. Core PBT improved by 29.6% on stronger MAHB and ISGA results with improved pax mix (from international), lower depreciation/ amortization charges and higher finance/ investment income.

YTD. Core PATMI growth of 83.3% while core PBT improved by 34.3%, mainly driven by higher passenger movement and improved passenger mix from international segment (including ASEAN) in both MAHB and ISGA.

Tax (Malaysia). The change in tax treatment for KLIA2 has allowed MAHB to utilize the ITA for KLIA2 for the whole group as well as back-track its tax payments since the commencement of KLIA2 operation in 2QFY14. The total unutilized tax credit amounts to circa RM550-600m, which may be utilized over the years, subject to Inland Revenue Board approval. MAHB guided the effective tax rate for the coming years to stay low at 15-20% (as compared to previously above 30%).

PSC. MAHB has started to recognised RM73/pax for departing international passenger in KLIA2 effective 3QFY18 (from RM50/pax previously). MAHB will pursue legal actions in the event of dispute for the payments with airlines.

OA vs. RAB vs. AREIT. Details of the new Operating Agreement (OA) and RAB are still under discussion with MOT and MOF. At current juncture, MAHB is being tasked to undertake the necessary airport capex under RAB. Details of AREIT have not been revealed. However, MAHB is of the view that RAB structure is not compatible with the proposed AREIT structure.

Forecast. Unchanged as the Results Were Inline.

Maintain HOLD, TP: RM8.00. We maintain HOLD recommendation on MAHB with unchanged DCFE-derived TP of RM8.00, given the heightened earnings risk outlook under the upcoming RAB structure and the proposed AREIT.

Source: Hong Leong Investment Bank Research - 22 Nov 2018