AIRPORT registered 9M16 CNL of RM7.0m against our and consensus full-year CNP estimates of RM1.1m and RM79.9m, respectively. Results were broadly within our estimates as we expect a seasonally stronger 4Q16 but came in way below consensus likely due to the higher than expected tax rate and financing costs. No dividends declared as expected. Make no changes to our FY16-17 earnings. Maintain OP with unchanged TP of RM7.33 based on 1.58x FY17E PBV.

Broadly within. AIRPORT’s registered 9M16 CNL of RM7.0m vis-à- vis our and streets’ full-year estimates of RM1.1m and RM79.9m, respectively. We deem the results as broadly within our estimate as we expect a seasonally stronger 4Q16 on the back of higher passenger traffic to lift AIRPORT back into the black. Meanwhile, results came in significantly below consensus likely due to the higher-than-expected tax rate and financing costs. We do note that 9M16 EBITDA of RM1.3b was in line with our and management’s estimates of 1.7b. No dividends declared as expected.

Results highlight. 9M16 CNL of RM7.0m narrowed 91% YoY due to: (i) improvement in revenue (+9%) from higher passenger movements in Malaysia and Turkey operations (+4.8%), (ii) lower staff costs (-5%) from lower headcounts, and (iii) lower financing costs (-12%). Meanwhile, 3Q16 CNL of RM3.5m narrowed to 38%

QoQ underpinned by (i) higher revenue (+8%) as a result from higher passenger traffic (+10% QoQ) due to seasonality (Ramadan in 2Q16), and (ii) lower staff costs (-3%).

AIRPORT’s outlook. YTD, ISG’s passenger traffic growth of 5.9% trailed our 10% FY16 target as they were negatively affected by the military coup and Ataturk Airport bombing incident. Nonetheless, ISG is starting to see improvement with September domestic passengers registering +1.1%YoY as compared to negative growths in the immediate months preceding the events since June/July. While management has given reassurance that October passenger growth has improved tremendously registering a positive

YoY growth, we look forward to review October stats to decide if any adjustment to ISG passenger target is required. AIRPORT’s Malaysia operations continue to register strong growth with FY16 total passenger growths coming in at 4.4%, above our 3.0% estimate. We expect passenger traffic for Malaysian operations to remain robust on the back of: (i) entrance of new airlines, (ii) introduction to new routes, (iii) recovery of Malaysia Airlines, and (iv) increased travel demand.

Earnings forecast. Post results, we make no changes to our FY16E and FY17E earnings of RM1.1m and RM111.3m, respectively.

Maintain OUTPERFORM. 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) faster-than-expected recovery from Turkey operation

Source: Kenanga Research - 28 Oct 2016