Period  1Q14/3M14

Actual vs. Expectations  Malaysia Airports Holdings (AIRPORT)’s 1Q14 core earnings of RM132m came in within our expectations but slightly exceeded consensus estimates. Its 1Q14 core earnings makes up 28% and 31% of our and streets estimates, respectively. We believe that consensus is slightly more conservative due to the opening of KLIA2, which could potentially incur a higher-than-expected operating cost.

Dividends  No dividends were declared as expected.

Key Results Highlights

1Q14 vs. 1Q13

 AIRPORT still managed to record a marginal growth of 5% on its core earnings from RM126m to RM132m despite a 24% YoY drop in revenue.

 The significant drop in revenue was mainly due to the lower construction revenue recognized (-73.3%) as the construction progress for KLIA2 is already at its tail-end.

 However, should the construction revenue is excluded, operational revenue improved by 15.2% underpinned by strong growth in its aeronautical revenue (22.1%), retail and F&B segment (+14.3%) driven by the 18% growth in passenger movement.

1Q14 vs. 4Q13

 For the quarter, AIRPORT’s pre-tax profit expanded by 117% QoQ to RM179m.

 The increase in pre-tax profit was mainly due to lower losses contribution from its associates (-88%) whereby AIRPORT only absorbed another RM3.3m losses from ISG in 1Q14 due to minimal additional capital injection in ISG as compared to the RM44.0m losses in 4Q13, coupled with a lower depreciation cost of RM66m (-17%).

Outlook  We are still positive on AIRPORT’s outlook underpinned by: (i) a steady increase in passenger traffic growth, (ii) PSC rate that has been reviewed upwards by another 9% and (iii) the opening of KLIA2 that could potentially attract more airlines given its state-of-art facilities despite being a low cost terminal.

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.

 Higher-than-expected operational costs (i.e. utility costs, staff costs and etc.)

Source: Kenanga