Malaysia Airports (MAHB) reported a decent set of results - 6M19 core net profit grew by 27% yoy to RM309m on higher revenue from both its Malaysia and Turkey operations and write-back of doubtful debts. The results were above market and our expectations. Separately, the Transport Minister had on 30 August announced a cut in PSC for some international flights. While MAHB expects to recover the revenue loss from the cut under the upcoming RAB framework, this unexpected change has, in our view, somewhat clouded MAHB’s near-term earnings outlook. Nonetheless, we raise our 2019-21E EPS by 9-10% and the SOTP-derived TP to RM8.90 (from RM8.60) after incorporating higher profits from the Turkey operation and changes in PSC / user fees under the upcoming RAB framework. At a 22x 2020E PER, we believe the risk-reward proposition is balanced – maintain HOLD.

Decent 6M19 Earnings on Higher Domestic and Overseas Revenue

MAHB reported a decent set of results – 6M19 core net profit grew by 27% yoy to RM308.6m on the back of higher revenue (+6.0% yoy) and a robust EBITDA margin of 44%. The Malaysian operation’s 6M19 revenue grew by 6.5% yoy to RM1.92bn on higher passenger movements (+4.7%). The Turkey operation’s underlying revenue (excluding construction revenue) grew by a strong 18.5% yoy on higher international passenger growth (+21% yoy) and increase in passenger service charges (PSC). The closure of Istanbul Ataturk International Airport in April 2019 (replaced by the new Istanbul Airport) has affected nternational travellers’ travel preference and benefited MAHB’s Istanbul Sabiha Gokcen International Airport.

Sequentially, 2Q19 Core Profit Clocked in 7% Higher

MAHB’s 2Q19 revenue grew by 0.7% qoq on higher contribution from its Turkey operation (+13.7% qoq), which more than offset seasonally lower revenue from the Malaysian segment (3.1% qoq). The write-back of doubtful debt provision lifted the 2Q19 EBITDA margin (vs. 1Q19) but the growth rate in net profit was dampened by a higher effective tax rate.

All In, the Results Were Above Market and Our Expectations

Overall, the results were above market and our expectations - MAHB’s 6M19 core net profit accounted for 57% of the street’s and 59% of our previous full-year earnings forecasts. The earnings beat was largely attributable to better-than-expected performance of the Turkey operation and a RM25m write-back of doubtful debt provision in 2Q19 (a reversal from 1Q19 when MAHB made a provision of RM24.4m for doubtful debts).

Source: Affin Hwang Research - 3 Sept 2019