MAHB’s 2017 result was below market and our expectations. We were surprised by the higher interest expense with the increase in debt. Net profit jumped more than 2-fold to RM237m on the back of higher revenue (+12% yoy) and its high operating leverage. We lift EPS by 66% in 2018E to reflect a potential RM255m gain from the proposed sale of its 11% stake in GMR Hyderabad Intl Airport Ltd (GHIA) stake for RM295m. Uncertainty on the new aeronautical charges framework to be introduced will dampen sentiment on the stock. Maintain HOLD with lifted DCF-based TP of RM9.00, after rolling forward the base year to 2018E.

Below Expectations

Net profit of RM236m (+236% yoy) in 2017 was 11% below consensus forecast of RM266m and 16% below our estimate of RM280m. Revenue grew 12% yoy to RM4.65bn in 2017, driven by higher passenger movements in Malaysia (+8.5% yoy) and Turkey (+5.6% yoy), and strong non-airport operation revenue growth (+14.4% yoy). EBITDA grew at a faster rate of 14% yoy to RM1.88bn due to the slower growth in operating cost as MAHB implemented measures to control costs. Staff costs increased 14% yoy to RM421m in 2017 due to provision for bonus payment of about RM40m.

High Operating Leverage

The high operating leverage impact led to a stronger 82% yoy jump in PBT to RM335m in 2017. Malaysian operations contributed PBT of RM622m (+33% yoy) but Turkey operation incurred a loss of RM288m (-2% yoy). Lower effective tax rate of 29% in 2017 compared to 60% in 2016 led to the stronger bottom line growth.

Maintain HOLD With Higher TP of RM9.00

MAHB is targeting passenger growth of 6.3% in Malaysia and 7.4% in Turkey for 2018, and EBITDA including interest income of RM2.09bn (+9.5% yoy). We are more conservative in projecting EBITDA including interest income of RM1.82m in 2018E on expectation of higher costs and lower interest income. MAHB plans to incur RM600-700m capex in 2018 to upgrade its airports in preparation to meet higher quality of service standards under the proposed new aeronautical charges framework. We lift our DCF-based TP to RM9.00 from RM8.80 after rolling forward our valuation base year to 2018E. Maintain HOLD.

Source: Affin Hwang Research - 22 Feb 2018