Reported 3QFY19 core PATMI at RM162.1m (+39.7% QoQ; +19.3% YoY) and 9MFY19 at RM426.9m (+34.1% YoY). We deem the result within HLIB’s expectation (70.0%) as we expect seasonally stronger travel demand in 4QFY19. Maintain HOLD with unchanged DCFE-derived TP of RM7.80, given the concerns of RAB implementation. Furthermore, the impending MAS restructuring and VMY2020 may also affect the Govt’s decision.

Within expectation. Reported core PATMI of RM162.1m (+39.7% QoQ; +19.3% YoY) for 3QFY19 and RM426.9m (+34.1%) for 9MFY19, in line with HLIB’s FY19 forecast of RM647m (70.0%), but below consensus (58.9%). We are expecting similar 4QFY19 earnings with QoQ stronger Malaysia operation being offset by the seasonally weaker Turkey operation. Management has clarified the error in accounting for RM23.8m gain in unit trust disposal in 2QFY19.

Dividend. None.

QoQ/YoY/YTD. In line with stronger revenue, core PATMI improved by 39.7% QoQ, 19.3% YoY and 34.1% YTD, mainly driven by the improvements in Turkey ISGA operation on strong international traffic growth while Malaysia operation remained relatively stagnant given deteriorated passenger mix with on-going commercial reset activity during the year as well as higher operational costs.

Malaysia. Continued uncertainty on the effective implementation of RAB on 1 Jan 2020 while new structure of the OA has not been firmed yet. Recently the Ministry of Transportation (MoT) commented on studying alternatives to RAB structure and preferring the Public-Private Partnership model for future airport operation and developments.

PSC. Further uncertainty arose when MoT declared airports tariff for international departure at RM50 for all airports with the only exception on KLIA maintained at RM73. MAVCOM has clarified that MoT does not has the authority to set the tariff charges while MAHB has continued to charge RM73/pax to all airline passengers. However, AirAsia group is still charging RM50/pax. Further clarifications and discussions among stakeholders are still on-going. MAHB is upbeat to recover the price differential either from the respective airline or compensated through MARCS.

Capex. Despite the uncertainty on RAB implementation time line, MAHB will still be committed in spending RM300-400m to upgrade its facilities in KLIA-KLIA2, and it may not be able to recover the investments pending effective implementation of RAB framework.

ISGA turnaround. ISGA continued to show strong earnings momentum with third 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. There are still uncertainties with RAB framework as well as its implementation. Furthermore, the proposed RAB and PSC may also affect the impending MAS restructuring exercise and success of Visit Malaysia Year 2020 campaign.

Source: Hong Leong Investment Bank Research - 4 Dec 2019