AIRPORT’s FY16 Malaysia and Turkey passengers of 88.8m (+6.0%) and 29.6m (+4.8%) were within expectations making up 100% and 98% of our targets, respectively. Total passengers in December (including ISG) were up 5.3% YoY mainly driven by its Malaysian operations. For FY17, we maintain our growth targets of 6.0% and 7.0% for Malaysian and Turkey operations, respectively. Reiterate OUTPERFORM with unchanged TP of RM7.31.

FY16 passenger traffic growth in line. Malaysia and Turkey passengers of 88.8m (+6.0%) and 29.6m (+4.8%) were within expectations making up 100% and 98% of our targets, respectively. For Malaysian operations, growth was mainly contributed by increased travel demand where 27 airlines (local and foreign) registered double to triple digit growths at the international front prompting all their 5 international airports to register growth range of 3.0%-13.6%.

December passenger traffic. For December, AIRPORT’s passengers (including ISG) recorded growth of 5.3% YoY mainly due to their Malaysian operations which increased 7.2% YoY. Malaysian international and domestic passengers were up 9.6% and 4.9%, respectively. The overall increase was mainly due to greater travel demand coupled with new foreign airlines and existing domestic carriers operating at increased frequencies.

Steady growth at KLIA. In December, KLIA Main registered a growth of 29.9% YoY with international and domestic passengers registering positive growth of 26.7% and 39.3%, respectively. The growth is mainly supported by Malaysia Airlines Bhd (MAB)’s increased frequencies coupled with Malindo and Lion Air’s shift from KLIA 2 to KLIA Main since Mar 2016. YoY-YTD, KLIA Main registered record growth of 10.9% (against previous months’ growth of -12.9% to +9.0%). Meanwhile, KLIA 2 showed negative growth of 5.3% YoY (International: -4.1%; Domestic: -7.7%) due to passenger traffic moderating from Malindo and Lion Air’s shift in operations.

Turkey’s December traffic down. ISG Airport’s passenger growth for December was down 1.5% YoY dragged by its international traffic declining 4.6% YoY while domestic growth was flattish (+0.1%). We believe travel sentiment from the international front will continue to remain weak from the travel concerns in Turkey.

FY17 passenger growth estimates. Moving into FY17, we are maintaining our growth targets of 6.0% and 7.0% for Malaysian and Turkey operations as we expect Malaysian passenger growth to remain strong from strong travel demand coupled with increased capacities from airlines, i.e. AIRASIA, Malindo while Turkey’s international passenger traffic is expected to remain subdued.

Maintain earnings. Post review of December traffic figures, we make no changes to our FY16-17 earnings forecasts as passenger growths were in line with our targets.

Maintain OUTPERFORM with an unchanged TP of RM7.31 based on a 5-year +0.5SD FY17E PBV of 1.58x in view of the better earnings prospect from the new PSC structure recently implemented. Risks to our call include: (i) weaker-than-expected travel demand, and (ii) increased travel threats arising from Turkey.

Source: Kenanga Research - 11 Jan 2017