FY16 CNP of RM15.6m was above our estimate of RM4m but below consensus of RM68m. The positive variance against ours was due to the lower depreciation charges arising from the OA extension which kicked in from 4Q16 instead of FY17 which we had assumed. Declared dividend of 6.0 sen, bringing FY16 dividend to 10.0 sen ? above our 8.5 sen estimate. Tweak FY17E earnings lower by 9% after adjusting for higher maintenance costs and introduce FY18E earnings of RM299m. Maintain OP with lower TP of RM7.42 (from RM7.47).

FY16 above expectations. FY16 CNP of RM15.6m came in above our CNP estimate of RM4m but below consensus estimates of RM68m. The positive variance against our estimates was due to the lower depreciation charges arising from the OA extension which kicked in from 4Q16 instead of FY17 which we had assumed. Meanwhile, we believe the negative variance against consensus was due to higher-than-expected effective tax rates. Declared dividend of 6.0 sen, bringing FY16 dividends to 10.0 sen ? slightly above our estimate of 8.5 sen. We note that AIRPORT?s EBITDA of RM1,710m was in line with our RM1,709m estimate.

Results highlight. FY16 CNP of RM15.6m improved 128% YoY due to: (i) improvement in revenue (+8%) from higher passenger movements in Malaysia and Turkey (+5.8%), (ii) lower depreciation charges (-5%), and (iii) higher associate contributions (+158%). 4Q16 CNP of RM22.6m improved vs. 3Q16?s CNL of RM3.5m mainly due to lower depreciation and amortization charges (-63%) as AIRPORT had factored in the extension of operating agreement till 2069 from 4Q16.

Outlook. For FY17, management is targeting passenger growth rates of 6.5% and 7.2% for Malaysia and Turkey operations, which are slightly above our growth targets of 6.0% and 7.0%, respectively. In respect to the possible changes to the MARCS PSC rates, we understand that AIRPORT is currently seeking clarification from the respective authorities and hopes to come back with a definite answer by 1Q17.

Earnings adjustment. From FY17E onwards, we understand from management that the defect liability period for KLIA2 has ended, which will lead to a rise in maintenance costs. Hence, we adjust our FY17E earnings lower by 9% after adjusting for higher maintenance costs of c.RM30m for KLIA2 which we had not accounted for earlier. Meanwhile, we introduce our FY18E CNP of RM299m.

Maintain OUTPERFORM. Post adjustment in earnings, we maintain OUTPERFORM on AIRPORT with a lower TP of RM7.42 (from RM7.47) based on an unchanged 5-year +0.5SD FY17E PBV of 1.58x. We have applied +0.5SD to our valuations in view of the better earnings prospects from the new PSC structure recently implemented and the extension towards operating agreement.

Risks to our call include: (i) weaker-than-expected travel demand, and (ii) increased travel threats arising from Turkey.

Source: Kenanga Research - 01 Mar 2017