No change in passenger guidance. Despite 1H passenger numbers growing by only 4.2% y-o-y, management remains confident that the targeted 6%-7% passenger growth for 2012 can be achieved. Passenger growth in 2H would be pushed by the deployment of some chartered flights and MAS' new A380s coupled with extra capacity by foreign airlines. Management also hinted that according to flight schedules, there appears to be an improvement in aircraft capacities deployed by MAS.

Costs for KLIA2 unchanged and completion on schedule. The cost for KLIA2 remains unchanged at RM4bn and the airport is on track to commence operations by April 2013. Construction is currently 60% completed, including the roofing, which was completed this month. Construction of the remaining 40%, mostly consisting of interior fittings, can be ramped up very quickly.

Update on KLIA2 retail outlet tenders. The response from potential retailers has been encouraging, with management signing a number of F&B outlets already. Some 14% of the outlet space offered has been snapped up; or 32 lots out of the total 225 commercial lots comprising 118 lots for retail, 81 lots F&B, and 26 lots for services. This guarantees RM50m in rental revenue, excluding royalty, for the first year. Indicative rental rates appear to be much higher than the rental rate it fetches in LCCT. As a gauge, LCCT generates RM30m per annum in minimal guaranteed rental from its 61 outlets. And with KLIA2 offering 225 outlets and assuming only 60% are rented out (20% reserved for ERAMAN and 20% reserved for future tenants), rentals generated from KLIA2 could total RM210m. With royalty, this sum could hover around RM250-260m in additional revenue.

Update on Sabiha Gokcen. Management alluded to the possibility of injecting more capital into the loss-making Istanbul Sabiha Goksen International Airport (ISGIA), to the tune of RM30m, depending on whether it could restructure its loan, given that interest costs is high at 10%. Though ISGIA is expected to be EBITDA positive this year, it is projected to only report a positive bottomline by 2016. Note that we have excluded ISGIA's losses in deriving MAHB's core earnings due to the FRS accounting treatment losses.

Maintain BUY. We maintain our earnings forecasts and BUY recommendation, at an unchanged FV of RM7.53 (premised on 9% WACC on its DCF).Aside from resilient travel demand, we continue to like MAHB for its strong cash flow coming from the rentals and royalties from its current operations as well as from the upcoming KLIA2.

Source: OSK