AIRPORT?s total January passenger numbers (including ISG) registered growth of 8.9% YoY which we deem broadly inline with our 6.3% target as growth was mainly driven by its Malaysian operations due to seasonal CNY holidays. Maintain our earnings estimates post January passenger review. Reiterate OUTPERFORM with unchanged TP of RM7.47.

YTD passenger traffic growth. AIRPORT?s total January passenger numbers (including ISG) registered growth of 8.9% YoY-YTD, and we deem as in-line with our 6.3% target (6.0% growth for Malaysian Operations; 7.0% growth for Turkey operations) as it was driven by its stronger Malaysian operations which was mainly due to seasonal CNY holidays in 2017 which fell on January 28th versus February 8th last year.

Malaysian passenger traffic review. In January, AIRPORT?s passengers in Malaysia increased 13.3% YoY. International and domestic passengers were up 14.1% and 12.5%, respectively. The overall increase was mainly due to the CNY holidays which led to: (i) improved average load factor of 73.4% (+2.7ppt), and (ii) 80% of airports in Malaysia recording positive growth (+0.5% to 51.6%).

Strong growth at KLIA Main. KLIA Main registered a growth of 38.4% YoY with international and domestic passengers registering positive growth rates of 31.9% and 64.1%, respectively. In conjunction to seasonality, we believe 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. Meanwhile, KLIA 2 traffic saw a marginal decline of 0.7% YoY (International: -0.9%; Domestic: -0.3%) due to passenger traffic moderating from Malindo and Lion Air?s shift in operations.

Disappointment in Turkey. ISG Airport?s passenger growth for January was down 4.4% YoY dragged by its international and domestic traffic, which were down 8.4% and 2.3% YoY, respectively. We note that international traffic has been severely subdued due to numerous terror attacks in Turkey in 2016 - further deterring travellers. We believe travel sentiment from the international front will continue to remain weak from the travel concerns in Turkey and we would likely have to further reduce our 7.0% growth target for ISG in FY17 should passenger count continue to disappoint by the end of 1Q17.

Maintain earnings. Post review of January traffic figures, we make no changes to our FY16-17 earnings forecasts.

Maintain OUTPERFORM with an unchanged TP of RM7.47 based on a 5-year +0.5SD FY17E PBV of 1.58x in view of the better earnings prospect from the new PSC structure coupled with the extended operating agreement recently implemented. Risks to our call include: (i) weaker-than-expected travel demand, and (ii) increased travel threats arising from Turkey.

Source: Kenanga Research - 13 Feb 2017