News

Yesterday, Malaysia Airports (AIRPORT) announced that they are divesting their 10% stake in Delhi International Airport Private Limited (DIAL) for a total consideration of USD79.0m orRM292.6m.

Comments

We were not entirely surprised with the disposal of its 10% stake in DIAL, as management had mentioned about potentially divesting its overseas investments 2 – 3 years ago.

We are positive with the disposal as we believe itwould allow AIRPORT to have more focus on Sabiha Gocken International Airport’s operationsin the future.

The major proportion of the sale proceeds ofRM292.6m will be utilised for the repayment of borrowings (92.4%), while the remaining utilised for working capital (7.4%) and alsofees/expenses (0.2%) for the proposed disposal. Post repayment of borrowings and fees related tothe disposal, AIRPORT is expected to book anone-off gain of RM21.7m and we do not expect any special dividends from this particular disposal.

Outlook

Moving forward, we remain cautious on AIRPORT’s outlook mainly due to its high operating costs since the inception of KLIA2, coupled with management’s conservative passenger traffic forecast of 85.8m pax for theentire 2015 due to air travel mishaps in 2014. Furthermore, the total passenger traffic of 16.7m registered for the period from Jan-Feb was lower than expected, as it only makes up 15.3% of our full-year passenger traffic estimates of 109.3m.

Forecast

• We bump our FY15E net profit higher by 11% toRM216.5m after factoring in the potential one-offgain from the disposal. However, there are no changes to our FY15E core net profit of RM194.8m, as we did not factor in any earnings contribution from DIAL previously. No changes toour FY16E earnings.

Rating

• Maintain UNDERPERFORM

Valuation

• Given the challenging outlook in the aviation industry and operating environment for AIRPORT, which was bogged down by high operational costs since the inception of KLIA2, we reiterate our UNDERPERFORM on AIRPORT with an unchanged TP of RM6.77 that is based on SoP.

Risks to Our Call

• Significant increase in passenger numbers due toactive promotional activities by Tourism Ministryand also airlines in the region.
• Lower-than-expected operational costs (i.e. utilitycosts, staff costs and etc.)

Source: Kenanga Research - 25 Mar 2015