Period

4Q15/FY15

In FY15, Malaysia Airports Holdings (AIRPORT) registered core net loss (CNL) of RM55.8m. While the results are inline with our full-year loss expectation of RM57.0m, it still disappointed the market as consensus was expecting a full-year net profit of RM10.9m. 

We believe that consensus was too optimistic on its operating cost assumptions, especially expenses in depreciation and amortisation. Hence, the disappointment in earnings performance.

Dividends

Final single-tier dividend of 4.5 sen was announced; bringing its full-year dividend to 8.5 sen which is within our expectation.

YoY, AIRPORT registered net loss of RM20.4m, and core net loss of RM55.8m in FY15, vis-à-vis core net profit (CNP) of RM163.4m in FY14, albeit a 16% growth in revenue to RM3.87b. This was mainly due to higher operating costs, i.e. staff cost (+20%), depreciation (+122%), financing (+390%), coupled with a substantial increase in minority interest arising from the interest payment to its Perpetual Sukuk Holder from RM2.5m to RM57.5m. Our CNL is derived after stripping off forex gains and disposal gain from Delhi International Airport, adding back one-off provisioning costs i.e. PPE, doubtful debts, and inventories.

QoQ, 4Q15 saw vast improvements with a CNP of RM22.3m vis-à-vis CNL of RM1.0m back in 3Q15. This was mainly due to the marginal growth in revenue (+2%), coupled with better contribution from its other income (+141%), lower financing costs (-8%) and an increase in deferred tax, leading to higher taxation (+52%).

Outlook

AIRPORT announced their 2016 headline KPIs targeting passenger growth of 2.5% and 10.8% in Malaysia and Turkey, respectively. That said, they are also aiming to achieve an EBITDA target of RM902.1m for Malaysian operations while EUR180.9m for Turkey operations. We are looking at a pax growth of 2% for Malaysia and 20% in Turkey. 

We revised our FY16E earnings from a CNL of RM28m to CNP of RM2.9m, as we expect better contribution from Turkey given our bullish pax growth assumptions of 20%, while introducing our FY17E CNP of RM93.5m.

Rating

Maintain UNDERPERFORM

Valuation

No changes to our SoP driven TP of RM5.24, which implies a FY16E Price-to-Book of 1.12x, which is at its 5-year FWD -2SD levels. While we are still expecting earnings improvement from AIRPORT underpinned by the strong growth from its overseas operations, we believe that rerating catalyst lies in its Malaysian operations, whereby management need to further bring its operating costs down. 

Risks to Our Call

Significant passenger numbers pickup.

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