AIRPORT?s total February passenger numbers (including ISG) registered growth of 6.3% YoY-Ytd which is in line with our 6.3% target as growth was mainly driven by its Malaysian operations due to increased travel demand. Maintain our earnings estimates post February passenger review. Reiterate OUTPERFORM with unchanged TP of RM7.42.

YTD passenger traffic growth. AIRPORT?s total February passenger numbers (including ISG) registered growth of 6.3% YoY-YTD which is in line with our 6.3% target (+6.0% target for Malaysian operations; +7.0% target for Turkey operations) as it was driven by its Malaysian operations mainly due to increased travel demand.

Malaysian passenger traffic review. In February, AIRPORT?s passengers in Malaysia increased 5.0% YoY. International and domestic passengers were up 8.3% and 1.8%, respectively. The overall increase was due to increased travel demand despite only having 28 days in FY17 vs 29 days last year and the absence of Chinese New Year holidays for Feb 2017 (vs FY16 CNY holidays which fell on Feb 8th). Malaysia?s average load factor increased 1.3ppt on the back of increased aircraft capacities by 0.5%.

KLIA Main continue to perform. KLIA Main registered a growth of 28.3% YoY with international and domestic passengers registering positive growth rates of 28.5% and 27.8%, respectively. 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 5.3% YoY (International: -5.0%; Domestic: -6.0%) due to passenger traffic shift from Malindo and Lion Air?s move in operations.

Not doing too well in Turkey. ISG Airport?s passenger growth for February was down 5.6% YoY dragged by its international and domestic traffic, which were down 3.1% and 6.7% YoY, respectively. We believe the poor passenger traffic was partly due to heavy fogs and bad winter causing multiple flight cancellations and hence the poor traffic. Meanwhile, we note that international traffic has been severely subdued registering YTD passenger decline of 5.9% 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 February traffic figures, we make no changes to our FY17-18E earnings forecasts.

Maintain OUTPERFORM with an unchanged TP of RM7.42 based on a +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 in Turkey.

Source: Kenanga Research - 13 Mar 2017