Reported core earning of RM402.2m for FY18 within HLIB’s expectation, but below consensus. The growth of 68.2% YoY was driven by improving traffic, lower finance cost, higher JV/associates and lower effective tax (following the change in tax treatment for KLIA2 effective 3QFY18). Management expects higher operational costs in FY19 in tandem with the implementation of RAB structure, which may affect overall margin. Maintain HOLD with unchanged DCFE-derived TP of RM7.50, given the heightened earnings risk under RAB and AREIT structure.

Within expectation. Reported core PATMI of RM74.9m for 4QFY18 and RM402.2m for FY18, achieved 96.5% of our FY18 forecast, but below consensus at 88.4%. FY18 effective tax rate was substantially lower than FY17 as 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. MAHB guided the effective tax rate for the coming years to stay low at 15-20% (as compared to previously above 30%).

Dividend. Proposed second single tier interim dividend of 9 sen/share, bringing full year dividend to 15 sen/share (1.8% dividend yield).

QoQ. Core PATMI dropped by 48.3% mainly due to: 1) higher operational cost in Malaysia due to higher staff and maintenance cost as MAHB prepared to meet the Quality Services under the upcoming RAB structure; 2) seasonally lower travel period for ISGA; and 3) normalizing of the change in tax treatment for KLIA2, resulting RM3.4m tax credit in 3QFY18.

YoY. Core PATMI increased by 23.6% mainly on lower tax expenditure following the change in tax treatment for KLIA2 effective 3QFY8.

YTD. Core PATMI growth of 68.2% due to: 1) higher passenger movement and improved passenger mix from international segment (including ASEAN) in both MAHB and ISGA; 2) lower finance costs; 3) higher contribution from JVs/Associates; and 4) lower effective tax rate.

KPI FY19. Management revealed its KPIs for FY19 which is to achieve EBITDA of RM1.2bn for Malaysia operation (achieved core RM1.2bn in FY18), RM927.5m for ISGA (achieved core RM862.1m in FY18) and a new target for Qatar at RM26.0m. We note that management expects higher expenditure in preparation for RAB structure in FY19 and budgeted the incremental c.RM300m expenditure to be in tandem with the increase in revenue (along with targeted pax growth of +4.9%).

OA vs. RAB vs. AREIT. Details of the new Operating Agreement (OA) and RAB have not been finalised yet. However, MAHB has proposed to MAVCOM to delay the start of RAB implementation to 1 Jan 2020 (from 1 Jul 2019) for the former to have better preparation for the structure as well as timing with its financial year. On another note, MAHB is entitled for a hike in tariff effective 19 Feb 2019 under the existing OA agreement or MAHB will be entitled for compensation under MARCs. However, any decision on the tariff and MARCs is still subject to government’s approval.

Forecast. Unchanged as the Results Were Inline.

Maintain HOLD, TP: RM7.50. We maintain HOLD recommendation on MAHB with unchanged DCFE-derived TP of RM7.50, given the heightened earnings risk outlook under the upcoming RAB structure and the proposed AREIT.

Source: Hong Leong Investment Bank Research - 1 Mar 2019