Period  3Q13 / 9M13

Actual vs. Expectations    Malaysia Airports Holdings (“Airport”) 9M13 came in within expectations with a core net profit of RM340.6m, making up 78% and 79% of ours and streets full-year estimates respectively.

Dividends  No dividends are declared as expected.

Key Results Highlights  9M13, YoY. Airport’s core net profit dipped marginally by 3% from RM352.4m to RM340.6m despite a 34% increase in revenue which was mainly due to higher direct costs (+10.5%) and operating costs (+23.0%). The increase in direct cost was mainly due to the increase in direct materials and direct labour which saw an increase of 13.3% and 12.8%, respectively while the swell in operating cost was a result of an increase in staff cost (+13.0%), user fees (+137.3%) and financing costs (+58%).

 QoQ, its 3Q13 core net profit of saw an improvement of 11% from RM101.8m to RM112.8m was partly due to lower user fees of RM60.9m (-26%) charged for the period as compared to RM82.4m back in 2Q13 given that Airport had fully settled the residual balance owed to the government in Apr-13.

 YoY, While Airport’s 3Q13 core net profit of RM112.8m are rather flattish as compared to 3Q12 due to higher operating costs like depreciation (+26%), financing costs (+79.2%), its revenue saw an improvement of 29% from RM754.2m to RM972.7m underpinned by the growth on its airport services, retail, and construction which recorded a growth of 15%, 19% and 64%, respectively.

Outlook  We are optimistic with Airport’s outlook given a steady increase in passenger traffic in Asia Pacific supported by a rise in air travel demand coupled with the reinstatement of routes by airlines (i.e. MAS) and the entrance of new airlines coupled with Visit Malaysia Year 2014.

Change to Forecasts  No changes to our earnings estimate.

Rating   Maintain MARKET PERFORM

  We are maintaining our MARKET PERFORM on Airport given the limited upside to our new TP of RM8.48 based on SOP and longer term positive outlook due to the opening of KLIA2 and Visit Malaysia Year 2014. However, we do expect some profit taking activities to take place in the short term.

Valuation  We raised our TP higher by 10% from RM7.72 to RM8.48 with a higher targeted PER of 20x (+2SD on its 3-year average forward PER) on its FY14E Malaysia operation earnings, given the recent RM1.0b capex allocation from the government on the aviation industry from the recent budget announcement and Visit Malaysia Year 2014 would potentially earnings catalyst for Airport.

Risks  Significant drop in passenger numbers due to catastrophic events. 

Source: Kenanga