AIRPORT’s Malaysian passenger traffic growth of 4.4% YoYYTD came in above our 3.0% target while its Turkey passenger growth of 5.9% YoY-YTD was below our 10.0% target. Total September passenger number (including ISG) registered growth of 8.6% YoY mainly driven by its Malaysian operation. No changes to our FY16-17E core earnings for now as we look to review our growth estimates after the October passenger traffic stats. Maintain OUTPERFORM with unchanged TP of RM7.33.

YTD passenger traffic growth. Total passenger growth for Malaysian airports and ISG (Turkey) was up 4.4% and 5.9% YoY-YTD, respectively. While Malaysian passenger growth came in above our 3.0% target, ISG was below our 10.0% target. AIRPORT’s total September passenger numbers (including ISG) registered growth of 8.6% YoY mainly driven by its Malaysian operation due to an improved average load factor (+5.9ppt) and almost all airports in Malaysia recording positive growth.

Malaysian passenger traffic review. In September, AIRPORT’s passengers in Malaysia increased 12.3% YoY. International and domestic passengers were up 15.3% and 9.7%, respectively. The overall increase was mainly due to: (i) improved average load factor to 74.7% (+5.9ppt), (ii) 21 airlines recording double-digit YoY growth (+12% to +90%), and (iii) new foreign airlines operating in Sept 2016 (against Sept 2015).

Strongest YoY growth at KLIA Main for FY16. For September, KLIA Main registered a record growth of 35.2% YoY in FY16 with international and domestic passengers registering positive growth of 27.2% and 62.5%, respectively. The exceptional growth is due to Malaysia Airlines Bhd (MAB) regaining market share in the domestic and international front registering its first positive growth of 10% YoY in FY16 coupled with Malindo and Lion Air shifting operations from KLIA 2 to KLIA Main since 15th March 2016. YoY-YTD, KLIA Main showed improved growth of 6.5% (against previous month’s growth of -12.9% to +3.4%). Meanwhile, KLIA 2 showed negative growth of 0.9% YoY (International: +2.2%; Domestic: - 6.2%) due to passenger traffic moderating from Malindo and Lion Air shifting operations as explained.

Turkey operations showing slight recovery. ISG Airport’s September passenger numbers are seeing signs of recovery, registering a mild decline of 0.4% YoY versus the decline of 2.2% to 5.0% YoY from June to August since the bombing, military coup and declaration of state of emergency in Turkey. Its international growth declined 3.2% YoY, its domestic growth registered positive 1.1% growth YoY indicating slight glimpse of recovery since the string of negative events which shook Turkey.

Maintain OUTPERFORM. Despite ISG’s 5.9% growth coming in below our 10.0% target, we make no changes to our passenger growth assumption for ISG as we are banking on a stronger 4Q performance given it is a seasonally stronger quarter and recovery of ISG traffic as the impact from the negative news subsides. However, we look to review our growth estimates after the October passenger stats should ISG fail to show significant recovery. Maintain OUTPERFORM on AIRPORT with an unchanged TP of RM7.33 based on a 5-year +0.5SD FY17E PBV of 1.58x. We believe further upside to TP 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 Oct 2016