Period

2Q15/1H15 Actual vs. Expectatio ns

Malaysia Airports Holdings (AIRPORT) registered core net losses of RM48.4.6m, which came below our, and market consensus, profit expectations of RM72.2m and RM132.5m, respectively. The let down was caused by higherthan- expected operating costs arising from oneoff salary adjustment that took place in May-15.

Dividends

No dividend was proposed for 2Q15 as expected. Key

Results

Highlights

YoY, AIRPORT registered core net loss of RM48.4m for 1H15, vis-à-vis core net profit of RM146.9m previously, underpinned by the decrease in revenue of 7%, coupled with the sharp increase in staff costs by 27% and higher depreciation costs of 106%. The decrease in revenue was mainly due to the absence of construction recognition in 1H15 as KLIA2 was completed in 1H14, while the increase in staff cost and other expenses was due to one-off salary adjustment and higher depreciation arising from the full commencement of KLIA2 and higher amortisation from SGIA.

QoQ, 2Q15 EBITDA of RM420.8m saw a minor improvement by 4% which was well supported by its revenue growth of 7%. The improvement in revenue was mainly driven by higher ISG revenue in line with the increase in passenger movements, coupled with higher PSC and MARCS ERL revenue in Malaysia.

Outlook

We maintain our cautious view on AIRPORT’s outlook due to its high operating costs since the commencement of KLIA2, coupled with potentially slower passenger traffic grow than management’s already conservative passenger traffic forecast of 85.8m pax for the entire 2015.

Change to Forecasts

We cut our FY15-16E core net profits by 59.0%- 40.0% to RM29.8m-RM58.7m, after we adjusted our operational costs higher after factoring the salary adjustment.

Rating

Maintain UNDERPERFORM

Valuation

We reiterate our UNDERPERFORM view on AIRPORT due to the lack of near-term catalyst with a lower TP of RM5.90 (previously, RM6.18) 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 - 31 Jul 2015