1Q17 CNP of RM48.8m accounted for 20% of both our and consensus CNP estimates of RM239m which we deem as broadly in-line as we expect stronger quarters ahead from: (i) recovery of Turkey passenger figures, and (ii) seasonality factors in 4Q. No dividends declared as expected. Maintain our FY17-18E earnings post results. Maintain MP with a higher TP of RM7.59 (from RM7.42) as we roll forward valuation base year to FY18.

1Q17 broadly within expectations. 1Q17 CNP of RM48.8m came in at 20% of both our and consensus CNP estimates of RM239m which we deem broadly inline as we expect stronger quarters ahead from: (i) recovery of Turkey passenger figures, and (ii) seasonality factors in 4Q. No dividends declared as expected. We note that 1Q17 EBITDA of RM497.5m is in line with our and management’s estimates of RM1837m and RM1797m, respectively.

Results highlight. 1Q17 CNP improved 20-fold YoY due to: (i) improvement in revenue (+7%) from higher passenger movements in Malaysia and Turkey (+7.5%), (ii) lower depreciation and amortization charges (-9%) from the 35 years extension in AIRPORTS Operating Agreement with the GoM in January, (iii) higher associate contributions (+19%), and (iv) lower effective tax rates by 20ppt. 1Q17 CNP improved 115.8% QoQ due to: (i) lower staff costs (- 16.8%), (ii) lower financing costs (-10.7%) from lower borrowings, (iii) lower other expenses (-19%) from lower repair, maintenance, admin and utilities costs, and (iv) lower effective tax rates by 20ppt.

Outlook. Moving forward, we expect Turkey passenger volume to improve from current YTD growth rate of -1.9%. We see positive signs in their March passenger growth rates in which AIRPORT registered their first positive YoY growth in FY17 of +4.1%. In addition, we understand that the recent referendum in Turkey (held on 16th April 2017) which adopt a presidential system of government will make Turkish democracy more resilient by putting an end to the existing weak coalition of governments, which could possibly deter future military interventions like the one in FY16 – a positive development for Turkey’s tourism. Hence, we are maintaining our forecast 7% growth rate in Turkey and Malaysia’s passenger growth rate of 6%.

Earnings adjustment. Post results, we make no adjustments to our FY17E-FY18E earnings estimates of RM239m-RM299m, respectively.

Maintain MARKET PERFORM. We maintain our MARKET PERFORM call on AIRPORT with a higher TP of RM7.59 (from RM7.42) as we roll forward valuation base year to FY18E on an unchanged Fwd. PBV of 1.58x. We believe our applied +0.5SD to our valuations is fair given the better earnings prospects from the new PSC structure implemented since the beginning of FY17 and the operating agreement extension. We believe re-rating catalysts are: (i) stronger-than-expected recovery from Turkey, and (ii) higher-than-expected passenger growth for Malaysian operations.

Source: Kenanga Research - 2 May 2017