Malaysia Airports (MAHB) reported a strong set of results – 9M18 core net profit doubled to RM411m on higher revenue, improved EBITDA margin and lower effective tax rate. In particular, the group delivered a stellar 3Q18 core net profit of RM168m (+97% qoq) on the back of higher revenue and EBITDA margin. Overall, the results were above consensus and our expectations. Meanwhile, management guided that negotiations for its operating agreement is progressing well, though it may only be finalised in 2019. We put our earnings forecasts, rating and target price under review.

9M18 Core Net Profit Doubled to RM411m, Above Expectations

MAHB reported a strong set of results. 9M18 revenue grew by 5.7% to RM3.6bn on higher contributions from both Malaysia (+3.4% yoy) and Turkey operations (+5.0% yoy), and the recognition of RM68m of construction revenue (nil in 9M17). MAHB saw a 4.5% yoy increase in 9M18 passenger movements to 99.5m and 2.3% increase in aircraft movement. The higher revenue and relatively flattish operating costs had led to higher 9M18 EBITDA of RM1.59bn (+11.2% yoy). This, coupled with a lower effective tax rate due to the utilisation of investment tax allowance resulted in the doubling of core net profit to RM411m. Overall, the results were above both market and our expectations – MAHB’s 9M18 core net profit accounted for 90% of street and 100% of our full year earnings forecasts.

3Q18 Core Net Profit Grew by 97% on Higher Revenue, Lower Tax

Sequentially, MAHB’s 3Q18 revenue grew by 6.5% qoq on higher revenue from both Malaysia and Turkey operations. The 3Q18 Malaysian aeronautical revenue was partly boosted by the increase in passenger service charge (PSC) for ASEAN passenger to RM73 (from RM50); meanwhile, Turkey’s revenue (excluding construction revenue) grew by a strong 20% qoq on higher international passenger and commercial revenue. Separately, MAHB has obtained the approval from the Inland Revenue Board in mid-2018 to utilise the ITA from its investment in KLIA 2. A tax credit was booked in in 3Q18, resulting in the higher core net profit. Management will continue utilising the ITA (c.RM600m) over the next 1-2 years.

Under Review

We put our rating, price target and earnings forecasts under review, pending a meeting with management. This note marks a transfer of coverage.

Source: Affin Hwang Research - 22 Nov 2018