Period

3Q15/9M15 Actual vs. Expectation s

Malaysia Airports Holdings (AIRPORT) continued to register core net loss of RM35.1m, which came below both our and consensus’ expectations.

The disappointment in earnings is still mainly due its higher-than-expected operating costs i.e. staff costs, depreciation and amortisation and financing costs. That said, the higher-than-expected cost was also affected by the weaker ringgit in 3Q15 for its overseas operations.

Dividends

No dividend was proposed for 3Q15 as expected.

Key Results Highlights

YoY, AIRPORT registered net profit of RM80.4m (-6%) for 9M15. However, should we reverse all the one-off gains and write backs, AIRPORT would have registered a core net loss of RM35.1m vis-à-vis a core net profit of RM151.3m for 9M14. The main drag on its profitability stemmed from higher staff costs (+23%), depreciation and amortisation (+88%) coupled with higher financing costs (+472%) since the commencement of KLIA2 and full consolidation of SGIA.

QoQ, as for 3Q15 AIRPORT managed to register a core net profit of RM13.3m vis-à-vis core net loss of RM16.9m underpinned by 8% growth in revenue. That said, AIRPORT also managed to bring down its major financing costs by 9% due to the settlement of its revolving credit coupled with a positive tax of RM9.7m registered in 3Q15, due to investment tax allowance benefits.

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 further reduce our FY15-16E earnings to core net losses of RM57.0 and RM27.8m, respectively as we factored in higher operation costs i.e. staff, financing and depreciation.

Rating

Maintain UNDERPERFORM

Valuation

We reiterate our UNDERPERFORM call with a lower TP of RM5.24 (previously, RM5.90) that is based on SoP, following our downward revision in earnings.

The re-rating catalyst for AIRPORT lies on its ability to further bring down its operational costs to be operationally efficient coupled with a stronger-thanexpected traffic growth.

Risks to Our Call

Significant passenger numbers pickup.

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

Source: Kenanga Research - 28 Oct 2015