Malaysia’s passenger traffic growth of 5.4% YoY-YTD came in above our 3.0% target while Turkey’s passenger growth of 5.6% YoY-YTD was below our 10.0% target. Total October passenger numbers (including ISG) registered growth of 11.0% YoY mainly driven by its Malaysian operations. We revise our Malaysia passenger growth higher to 6.0% and Turkey passenger growth lower to 7.0%. Consequently, FY16-17E earnings are increased by 278%-1%. Maintain OUTPERFORM with unchanged TP of RM7.31.

YTD passenger traffic growth. Total passenger growth for Malaysian airports and ISG (Turkey) was up 5.4% and 5.6% YoY-YTD, respectively. While Malaysia’s passenger growth came in above our 3.0% target, ISG was below our 10.0% target. AIRPORT’s total October passenger numbers (including ISG) registered growth of 11.0% YoY mainly driven by its stronger Malaysian operations.

Malaysian passenger traffic review. In October, AIRPORT’s passengers in Malaysia increased 14.0% YoY. International and domestic passengers were up 13.0% and 14.9%, respectively. The overall increase was mainly due to: (i) improved average load factor to 71% (+4.5ppt), (ii) all international airports recording double-digit YoY growth (+12% to +38%), and (iii) new foreign airlines operating in Oct 2016 (against Oct 2015).

Strong YoY growth at KLIA Main. In October, KLIA Main registered a growth of 34.2% YoY with international and domestic passengers registering positive growth of 26.1% and 64.9%, respectively. The growth is strongly supported by Malaysia Airlines Bhd (MAB) and Malindo Air displaying double-digit growths in the domestic and international front. YoY-YTD, KLIA Main registered record growth of 9.0% (against previous months’ growth of -12.9% to +6.5%). Meanwhile, KLIA 2 showed negative growth of 0.3% YoY (International: -0.6%; Domestic: 0.4%) due to passenger traffic moderating from Malindo and Lion Air’s shift in operations since 15th March 2016.

Turkey operations first positive growth since negative events. ISG Airport’s passenger growth for October was up 3.4% YoY (against - 0.4% to -5.0% YoY for months June to September) post bombing, military coup and declaration of state of emergency in Turkey. The growth was mainly buoyed by its domestic passenger registering a healthy 8.9% growth while international passengers were still in negative territory (-6.7%). While we are positive on the recovery, we believe our 10.0% target might still be slightly stretched considering ISG only registered 5.6% growth YoY-YTD.

Revision in passenger growth. Post review of October traffic figures, we revise our Malaysia passenger growth figures higher to 6.0% (from 3.0%) and Turkey passenger figures lower to 7.0% (from 10.0%) in view of the: (i) stronger growth in Malaysian operations, and (ii) a weaker growth environment in Turkey from the consequences of the negative events. Post revision, FY16-17E core earnings are increased by 278%-1%.

Maintain OUTPERFORM. Post revision, we maintain OUTPERFORM on AIRPORT with an unchanged TP of RM7.31 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 operations.

Source: Kenanga Research - 11 Nov 2016