Period     2Q13 / 1H13

Actual vs. Expectations     Malaysia Airports Holdings (“Airport”) recorded a core net profit of RM227.8m in 1H13, beating ours and streets’ FY13E estimates by 11% and 7% respectively.

The out-performance is due to stronger than expected passenger traffic growth of 13.6% and higher construction contribution. 

Dividends    No dividends were declared as expected.

Key Results Highlights     1H13, YoY. Airport’s core net profit dipped marginally by 5% to RM227.8m despite a 37% increase in revenue mainly due to higher operating costs (staff cost, utilities, and maintenance costs) and construction costs which saw an increase of 24% and 87%, respectively.

QoQ, its core net profit declined by 19% to RM101.8m underpinned by slower recognition in construction revenue, which declined 15% to RM386.7m coupled with higher operating costs due to the increase in staff cost and user fees in which Airport has fully settled to the Government in April-13.

YoY,  despite the decline in earnings, revenue saw an increase of 21% to RM978.2m due to better performance in its retail airport services, retail, and construction which recorded growths of 15%, 11% and 36%, respective.

Outlook    We are optimistic on Airport’s outlook given the steady increase in passenger traffic in Asia Pacific supported by a rise in air travel demand coupled with the reinstatement of routes by some airlines (i.e. MAS) and the entrance of new airlines such as Malindo, Air France, Turkish Airlines, Thai Smile, Philippines Airways & Regent Airways.

Change to Forecasts   Post-results, we have adjusted our FY13E and FY14E estimates higher by 18% and 6% as we revise our passenger traffic and construction profit assumption higher.

Rating  Upgrade to OUTPERFORM

Upgrading to OUTPERFORM from MARKET PERFORM given a higher upside potential to our new TP of RM7.72.

Valuation     In line with the revisions, we adjusted our TP higher by 17% from RM6.60 to RM7.72 with a higher targeted PER of 18x on its FY14E underpinned by buoyant outlook on Airport and the opening of KLIA2 in 2014. 

Risks    Significant drop in passenger numbers due to unexpected catastrophic events.

Source: Kenanga