Reported 2QFY19 core PATMI at RM90.5m (-39.4% QoQ; +45.0% YoY) and 1HFY19 at RM239.1m (+31.2% YoY). We deem the result within HLIB’s expectation (37.0%) as we expect seasonally stronger travel demand in 2HFY19. Declared an interim single tier dividend of 5 sen/share (ex -date: 18 Sep). Maintain HOLD with unchanged DCFE-derived TP of RM7.80, given the concerns of earnings risk under RAB and AREIT structure.

Within expectations. Reported core PATMI of RM90.5m (-39.4% QoQ; +45.0% YoY) for 2QFY19 and RM239.1m (+31.2%) for 1HFY19, vs. HLIB’s FY19 forecast of RM647m (37.0%) and consensus (44.0%). We deemed the results in line as we expect seasonally stronger travel demand in 2HFY19. We have excluded disposal gain of RM24m of unit trust investments and RM19m tax gain in ISGA operation in 1HFY19.

Dividend. Declared an interim single tier dividend of 5 sen/share (ex-date: 18 Sep).

QoQ. While revenue was flattish, core PATMI declined 39.4% mainly due to worsened passenger mix (driven by lower value added domestic air travelling), losses at Hotel and Agriculture segments as well as higher tax expenses.

YoY/YTD. Core PATMI increased by 45.0% YoY and 31.2% YTD, attributed to higher passenger movements at MAHB and ISGA with lower net finance costs and lower tax expenses.

Malaysia. Upcoming implementation of RAB structure effective 2020 would improve MAHB’s earnings due to the higher allowable revenue. However, MAHB would also be committed to high capex spending of RM5bn for 2020-2022 period, potentially increasing gearing and affecting its cashflow, and subsequently impeding its dividend payout. Moreover, there are still elements of uncertainties pertaining to the finalization of RAB structure and the development of Airport REIT by the government. Relating to the RM50 airport tariff for international passenger in all airports (exception for KLIA MTB), management remained confident that MAHB would be compensated through MARCS or user fee contra (to the government), as MAHB is protected under the Operating Agreement.

ISGA turnaround. ISGA continued to show strong earnings momentum with second consecutive quarterly profit, driven by the increase in international traffic and the implementation of EUR3 PSSC. The recent terminal capacity expansion to 41mppa and upcoming complete construction of runway 2 will further enhance ISGA’s traffic flow. We expect ISGA to record its maiden full year profit in 2019.

Forecast. Unchanged.

Maintain HOLD, TP: RM7.80. We maintain HOLD recommendation on MAHB with unchanged DCFE-derived TP of RM7.80, given the heightened earnings risk outlook under the upcoming RAB structure and the proposed AREIT.

Source: Hong Leong Investment Bank Research - 3 Sept 2019