AIRPORT’s May passenger traffic for airports in Malaysia and Turkey grew 3.1% and 15.4% YoY-Ytd, respectively, which are inline with our targets. Hence, we are keeping our MARKET PERFORM rating with an unchanged TP of RM7.11 at this juncture. However, we believe re-rating catalysts for AIRPORT depend on: (i) the extension of its operating agreement, and (ii) stronger-than-expected passenger traffic growth especially from the international market.

Passenger traffic growth on-track. Its total Passenger growth for all airports in Malaysia grew 3.1% YoY-Ytd which is inline with our 3.0% target. We note that the 3.1% growth is above management’s 2016 target of 2.5%. Meanwhile, ISG airport’s 15.5% growth YoY-Ytd is within expectation as we targeted double-digit growth as guided by management.

Malaysian airports passenger traffic review. For May, overall AIRPORT’s passenger for all airports in Malaysia grew 1.9% YoY. International passengers rose 5.0% YoY while domestic passengers dipped 0.8% YoY. The overall growth was achieved mainly on: (i) improved load factor, (ii) improved passenger traffic from North East Asia and Middle East coupled with (iii) notable growth in Japan, China and Korea passenger traffic of between 11%-28%.

KLIA Main finally registering a positive growth. In May, KLIA Main enjoyed a growth of 6.0% YoY (International: +0.8%; Domestic: +22.6%). We note that this is the first month in 2016 in which they recorded a positive YoY growth. This positive domestic growth was due to Malindo and Lion Air shifting their operations to KLIA Main from KLIA2 since 15 March 2016 coupled with significant improvements in load factor for both carriers.

KLIA 2 traffic growth backed by international traffic. KLIA2 registered weaker total passenger growth, which was only up 2.3% YoY whilst it recorded growth range of 7.6%-25.5% in the previous four months. We believe this is due to the shift of operations of Malindo and Lion Air in March 2016 as mentioned above. However, its international passenger traffic growth remains strong at 6.8% but dragged down by the domestic side which registered growth of -5.5% YoY.

Turkey operations holding up well. ISG Airport recorded total passenger growth of 10.4% YoY for May. ISG Airport continues to record double-digit growth of 15.0% domestically, while its international traffic was only up by 1.8%. We note that the international growth in May was up from the previous negative growth of 0.8% experienced in April due to unfavourable security sentiment in addition to the new visa regime, which has affected inbound tourism. Nonetheless, we are not overly concerned over its international traffic growth, as ISG’s core focus is still on the domestic market.

Maintain MARKET PERFORM. We make no changes to our earnings forecast in which we deem achievable due to AIRPORT’s improved earnings visibility and growth direction of company. All-in, we are maintaining our MARKET PERFORM call on AIRPORT with an unchanged TP of RM7.11 based on a 5-year forward average FY17E PBV of 1.52x, as its passenger traffic numbers are still on-track to meet our estimates. We believe that the re-rating catalysts for AIRPORT depend on: (i) extension of its operating agreement, and ii) stronger-then-expected passenger traffic growth especially from the international market.

Source: Kenanga Research - 13 Jun 2016