Period

1Q15

Actual vs. Expectations

Malaysia Airports Holdings (AIRPORT) registered core net losses of RM31.4m in 1Q15, which missed our and consensus full-year profit estimates of RM194.8m and RM223.8m, respectively. The disappointing performance was mainly due to higher-than-expected depreciation & amortisation costs, and finance costs (inclusive of step up in utilisation cost) arising from Sabiha Gocken International Airport (SGIA).

Dividends

No dividend was declared as expected. Key

Results

Highlights

YoY, AIRPORT registered RM31.4m core net losses in 1Q15 vis-à-vis core net profit of RM133.3m in 1Q14 despite a 12.0% increase in revenue to RM876.2m. This is mainly driven by higher depreciation and financing costs arising from the opening of KLIA2 and full consolidation of SGIA that saw multi-fold increases by 2.1x and 210.2x, respectively. That said, its staff cost also saw an increase by 23.0% arising from higher headcount and salary increment/adjustments.

QoQ, its 1Q15 EBITDA of RM403.3m saw a major improvement of 142.0% vs. 4Q14’s EBITDA of RM166.9m, underpinned by 23.0% increase in revenue. The improvements were mainly due to the full consolidation of SGIA accounts of which SGIA makes up 21.0% of its 1Q15 total revenue of RM876.2m. Its Malaysian operations registered lower revenue of RM694.5m (-2.4%), which is seasonally weaker.

Outlook

Moving forward, we remain cautious on AIRPORT’s outlook due to its high operating costs since the commencement of KLIA2, coupled with management’s conservative passenger traffic forecast of 85.8m pax for the entire 2015 due to subsequent air travel mishaps in 2014. However, management remains hopeful that there could be more room for further optimism given government’s efforts in promoting Malaysia Year of Festivals campaign in 2015.

Change to Forecasts

We cut our FY15-16E core net profits by 63.0% - 54.0% to RM72.2m and RM98.3m, respectively after we adjusted our depreciation and financing costs higher after factoring in the step up in utilisation cost and higher amortisation for SGIA.

Rating

Maintain UNDERPERFORM

Valuation

The outlook in the aviation industry and operating environment for AIRPORT remain challenging, bogged down by high operational costs from the KLIA2 and SGIA coupled with the negative travel sentiment due to unfortunate air tragedies. We reiterate our UNDERPERFORM view on AIRPORT due to the lack of near-term catalyst with a lower TP of RM6.18 (previously, RM6.77) that is based on SoP, following our downward revision in earnings.

Risks to Our Call

Significant passenger numbers pickup.

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

Source: Kenanga Research - 6 May 2015