Malaysia Airports’ (MAHB)’s 2019 core net profit grew by 24% yoy to RM565m on higher revenue (+7.4% yoy) and an improved EBIT margin of 25.2% (from 23.1%). Yet, the results were below our expectations due to a disappointing 4Q19 core net profit of RM59m (- 70% qoq) arising from higher operating expenses. The Covid-19 outbreak is affecting passenger movement and retail sales at MAHB’s airports, and we expect the negative sentiment / travel advisory to persist for a few more months. As such, we cut our 2020- 21E EPS forecasts by 8-15% to account for the impact of the Covid- 19 outbreak. In tandem, we lower our 12-month SOTP-derived TP to RM6.95 (from RM7.50). Maintain HOLD; at a 20.5x 2020E PER, MAHB’s valuation is comparable to peers and looks fair to us.

2019 Core Profit Grew by 24% on Higher Revenue, Improved Margin

MAHB’s 2019 core net profit grew by 24% yoy to RM565.2m on the back of a higher revenue (+7.4% yoy) and an improved EBIT margin (+2.1 ppt to 25.2%). The Malaysian operation’s 2019 revenue grew by 6.1% yoy on higher passenger movement (+6.1%) while the Turkey operation’s underlying revenue (excluding construction revenue) grew by a strong 18.7% yoy on higher international passenger movement (+20.6% yoy) and an increase in passenger service charges (PSC). Management has proposed a final dividend of 10 sen, translating to a higher full-year dividend per share of 15 sen (2018: 14 sen).

Weak 4Q19 Core Profit of RM59m, Below Our Expectation

MAHB’s 4Q19 core net profit fell by a steep 70% qoq to RM59.3m due to higher operating costs that include: (i) higher staff costs of RM255m (from RM182m in 3Q19) due to provision of staff bonuses; (ii) higher maintenance costs (+RM21m qoq); (iii) provision for the technical glitch (RM7m); and (iv) recognition of RM11.6m of professional fees for its overseas operations. While we had anticipated weaker 4Q19 results (vis- à-vis 3Q19) due to higher staff costs, the decline was steeper than expected. Overall, the results were below consensus and our expectations – MAHB’s full-year core net profit came in at 96% of consensus and 93% of our previous full-year earnings forecasts. The earnings miss was due to the higher-than-expected operating costs in 4Q19.

Source: Affin Hwang Research - 5 Mar 2020