AIRPORT?s total March passenger numbers (including ISG) registered growth of 7.5% YoY-Ytd which is in line with our 6.3% target mainly driven by its Malaysian operations due to increased travel demand. Maintain our earnings estimates post March passenger review. Given strong YTD share price gains of 20%, we downgrade AIRPORT to MP (from OP) with unchanged TP of RM7.42.

YTD passenger traffic growth on track. AIRPORT?s total March passenger numbers (including ISG) registered growth of 7.5% YoY-YTD which is in line with our 6.3% target (+6.0% target for Malaysian operations; +7.0% target for Turkey operations) which was driven by its Malaysian operations mainly due to increased travel demand.

Malaysian passenger traffic review. In March, AIRPORT?s passengers in Malaysia increased 10.6% YoY. International and domestic passengers were up 12.4% and 9.0%, respectively. The overall increase was due to increased travel demand in addition to visa relaxations, currency advantage and various tourist promotional efforts. We note that Malaysia?s average load factor increased 2.3ppt to 76% on the back of increased aircraft capacities.

KLIA performing well. For March alone, KLIA Main registered growth of 23.0% YoY with international and domestic passengers registering positive growth rates of 21.5% and 27.3%, respectively. On the back of stronger travel demand, growth is also 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 first positive YoY growth of 5.1% (International: 5.3%; Domestic: 4.7%) since May 2016.

Turkey improving? ISG Airport?s passenger growth for March showed encouraging results, registering their first positive YoY growth in FY17 of +4.1%. International and domestic passengers were up 3.5% and 4.4%, respectively. Given the positive twist in recovery towards ISG?s passenger growth, we maintain our ISG growth target of +7.0% for FY17E. Nonetheless, we remain cautious, especially on the international front, considering the high number of terrorist attacks in Turkey (c.22 attacks in FY16 and 2 attacks in FY17) which could deter travellers and negatively impact passenger growth.

Maintain earnings. Post review of March traffic figures, we make no changes to our FY17-18E earnings.

Downgrade to MP. YTD, AIRPORT?s share price has shown tremendous strength registering YTD gains of 20%. Given the rally, we believe the risk-to-reward ratio for AIRPORT is not as compelling currently, and hence we downgrade AIRPORT to MP (from OP) with an unchanged TP of RM7.42 based on 5-year +0.5SD PBV of 1.58x.

Meanwhile, we believe further re-rating catalysts could be coming from (i) stronger-than-expected recovery from Turkey and (ii) higher-than-expected passenger growth for Malaysian operations.

Source: Kenanga Research - 11 Apr 2017