Period  4Q13 / FY13

Actual vs. Expectations Malaysia Airports Holdings (AIRPORT)’s FY13 core earnings of RM437m came in within expectations, making up 100% and 98% of our and street estimates, respectively.

Dividends  No dividends were declared as expected.

Key Results Highlights

FY13 vs FY12, YoY.

 Its full year core earnings of RM437m dipped by 3% from RM452m despite a 16% growth in revenue to the RM4.0b mark due to higher direct (+17%) and operating costs (+28%) incurred for the year. The bulk of the increase in its operating costs was due to the increase in staff costs (+20%) as a result of increase in staff size due to new recruitment for KLIA2 coupled with an annual salary increment of 4%-6%. Besides that, its user fee paid to the government also saw a significant increase of 137% from RM99m to RM235m. The increase in user fees was inevitable as AIRPORT are recognizing the user fees in full as compared to 50% previously given that AIRPORT had fully settled the residual balance owed to the government in April-13.

4Q13 vs 4Q12, YoY.

 AIRPORT saw a 16% decrease in revenue from RM1.3b to RM1.1b due to the lower construction revenue (-41%) being recognized given the construction progress for KLIA2 is reaching its tail-end. However, should the construction revenue is excluded, operationally, AIRPORT’s revenue grew 16% from RM590m to RM684m underpinned by a strong growth in aeronautical revenue (+12%), retail sales (+16%) and non-airport operations (+14%).

4Q13 vs 3Q13, QoQ.

 For the quarter, AIRPORT saw a significant increase in losses for its associates and jointly controlled entities (JCE) amounting to a total loss of RM46m as compared to a small gain of RM500k in 3Q13. The loss on its associate and JCE was mainly from its overseas investment namely Sabiha Gocken airport (-RM44m) and also Male airport (-RM3.7m) in the Maldives. AIRPORT has to further recognize the losses from Sabiha Gocken given that the latter had increased its local borrowings whereby AIRPORT provided further financial support. The further losses from Male airport are mostly legal costs.

Outlook  We are highly optimistic on AIRPORT’s outlook on: (i) the steady increase in passenger traffic growth, (ii) Visit Malaysia Year 2014, whereby the Malaysian government had targeted 28m tourist arrivals, (iii) PSC rate review, and (iv) intensifying competition between airlines.

Change to Forecasts No changes to earnings forecast.

Rating Maintain OUTPERFORM

Valuation  We are maintaining our SoP-based TP of RM9.44, whereby its Malaysian operation is valued at 22x FY14 PER.

Risks to Our Call  Significant drop in passenger numbers due to catastrophic events.

Source: Kenanga