AIRPORT’s passenger traffic for its airports in Malaysia and Turkey were up 2.9% and 9.2% YoY-Ytd, in line with our targets of 3.0% and 10.0% respectively. Total July passenger numbers (including ISG) registered growth of 5.1% YoY due to higher travel demand for the Raya holiday season. ISG passenger traffic weakened further by 3.8% YoY (against - 2.2% YoY in June) impacted by the recent incident which struck Turkey. Maintain MARKET PERFORM with unchanged TP of RM6.43.

YTD passenger traffic growth inline. Total passenger growth for Malaysian Airport and ISG was up 2.9% and 9.2% YoY-Ytd, in line with our targets of 3.0% and 10.0%, respectively. Total AIRPORT’s July passenger numbers (including ISG) registered growth of 5.1% YoY due to heightened travel demand for the Raya holiday season.

Malaysian operations passenger traffic review. In July, AIRPORT’s passengers in Malaysia increased 8.5% YoY. International and domestic passengers were up 9.9% and 7.2%, respectively. The overall increase was mainly due to: (i) increased travel during the Raya holidays, and (ii) timing seasonality of this year’s Ramadan period versus last year.

Tremendous growth at KLIA Main. KLIA Main registered strong growth of 26.5% YoY (against January-June’s range of -13% to +6%) with international and domestic passengers registering positive growth of 16.1% and 67.3%, respectively. Besides the Raya holidays, the immense growth was also supported by Malaysia Airlines Bhd (MAB)’s strong passenger growth of 27% in the domestic front. We note that this is the first-time KLIA Main recorded a positive growth of 0.3% YoY-YTD.

KLIA 2 traffic growth moderating. KLIA 2’s passenger growth was down 1.3% YoY (International: +3.3%; Domestic: -9.7%) largely due to passenger traffic moderating from Malindo and Lion Air’s shifts in operations from KLIA 2 to KLIA Main since 15th March 2016. Besides that, we believe MAB is recapturing market share from airlines operating in KLIA 2 since their restructuring in Sept 2015.

Turkey operations continued to show weakness. ISG Airport’s passenger growth further weakened to -3.8% YoY (against -2.2% YoY in June) due to the travel warnings issues by various countries post the bombing in Ataturk (Turkey), a failed military coup and the declaration of state of emergency in Turkey. International traffic remained at a negative growth of 7.8% while domestic traffic dipped into a negative growth of 1.9% for the first time. Recall that we had trimmed our ISG passenger traffic growth estimates down from 20.0% to 10.0% in our last report (dated 29th July 2016) amid these negative events.

Maintain MARKET PERFORM. As passenger traffic numbers are on track, we make no changes to our passenger growth and earnings forecasts. Hence, we maintain our MARKET PERFORM call on AIRPORT with an unchanged TP of RM6.43 based on a 5-year -0.5SD FY17E PBV of 1.39x. We believe rerating catalyst lies with: (i) extension of operating agreement, (ii) stronger traffic from the international front, and (iii) fasterthan- expected recovery from Turkey operations.

Source: Kenanga Research - 11 Aug 2016