Malaysia Airports (MAHB) reported a weak set of results – 4Q18 core net profit of RM27m was sharply lower qoq (-84%) due to higher depreciation, higher operating costs (provision for doubtful debts, maintenance costs and employee benefits expenses) and lower revenue from Turkey operations. The 4Q18 results was below street and our forecasts. Moving into 2019, management forecasts the number of Malaysia passengers to grow by 4.9% and Turkey passengers to grow by 4.3%, and a target EBITDA of RM2.16bn. We trimmed our 2019-20E EPS forecasts by 9-10%, maintain HOLD with a lower TP of RM8.20.

2018 Core Net Profit Grew 45% Yoy on Higher Revenue, Lower Tax

MAHB’s 2018 revenue grew by 4.3% to RM4.85bn on higher contributions from both Malaysia (+3.7% yoy) and Turkey operations (+6.3% yoy), driven by 4.0% yoy increase in passenger movements (to 133.1m) and 2.8% increase in aircraft movement. The higher revenue, robust EBITDA margin (41%) and lower tax rate has led to 45% growth in core net profit to RM438m. Boosted by RM258m fair value gain on investment in GHIAL and RM28m gain on disposal of GMIAL, MAHB’s 2018 headline net profit grew by 147% yoy to RM727m. Management has proposed a final dividend of 9 sen, translating to a 14 sen payout for 2018 (2017: 12 sen).

Sequentially, 4Q18 Core Net Profit of RM27m Was a Disappointment

Notwithstanding a 1.8% qoq grow in revenue, MAHB’s 4Q18 core net profit fell by 84% qoq to RM27.1m (the lowest quarterly profit since 3Q16) due to higher expenses (provisions for doubtful debts, repair and maintenance costs, employee benefits), lower profit contributions from Turkey operation and lower tax credit. All in, the 4Q18 earnings were below street and our expectations due to higher than expected operating costs.

2019 Headline KPIs and Outlook

Moving into 2019, MAHB expects the numbers of passengers for its Malaysian operation to grow by 4.9% and Turkey operation to increase by 4.3%. Financially, management has announced an EBITDA target of RM2.16bn (+3.4% yoy), comprising: (i) RM1.21bn EBITDA from the Malaysia operation (flat yoy). Higher revenue will be offset by increase in maintenance expenses in order to meet the Quality of Service (QoS) targets; and (ii) RM954m of EBITDA (+8% yoy) from overseas operations on higher underlying earnings and stronger currencies (relative to Ringgit).

Source: Affin Hwang Research - 1 Mar 2019