AIRPORT’s 4M17 total passenger numbers registered growth of 9.8% YoY-Ytd, which is above our 6.3% target mainly due to the stronger than expected growth in Malaysian operations from increased travel demand. Upgrade our FY17-18E earnings estimates by 3%-5% post April passengers review. Maintain MP with higher TP of RM8.38 (from RM8.08) after upgrading our valuations to 1.74x FY18E PBV (from 1.58x).

4M17 passenger growth above expectations. AIRPORT’s 4M17 passenger numbers (including ISG) registered growth of 9.8% YoY-YTD which is above our total MAHB system growth target of 6.3% (+6.0% target for Malaysian operations; +7.0% target for Turkey operations) mainly driven by its Malaysian operations from increased travel demand.

Malaysia Review. In April, AIRPORT’s passengers in Malaysia increased 16.9% YoY. International and domestic passengers were up 20.2% and 13.8%, 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 6.2ppt to 79.4% on the back of increased aircraft capacities.

Strong KLIA traffic. For April, KLIA Main registered growth of 24.6% YoY with international and domestic passengers registering positive growth rates of 25.0% and 23.3%, respectively. On the back of stronger travel demand, growth is supported by increased seat capacities by airlines. Meanwhile, KLIA 2 traffic’s positive growth continues with April registering of 16.8% YoY (International: 16.6%; Domestic: 17.1%) which we believe is attributable to strong growth from AIRASIA and AAX.

The tide has turned in Turkey! ISG Airport’s passenger growth for April improved tremendously; registering their second consecutive YoY growth in FY17 of +8.1% driven by double-digit growth from their international segment (+16.1%) and domestic growth of 4.5%. We are positive on the growth in Turkey given that they had previously registered negative YoY growths since the negative streak of events, which shook Turkey since early FY16. We foresee this positive growth to continue underpinned by stronger tourist arrivals post Turkey referendum which is expected to strengthen democracy in Turkey and deter further military interventions like the coupe which happened in FY16.

Upgrade in earnings. Post review of April traffic figures, we upgrade our FY17-18E earnings by 3%-5% to RM245m-RM315m after tweaking our FY17E Malaysian passenger growth rate higher to +10% (from +6%) while maintaining FY17E ISG’s growth target of +7%.

Valuations. Apart from upgrading earnings, we also upgrade AIRPORT’s valuation to +1.5SD (5 years) FY18E PBV of 1.74x (previously +0.5SD of 1.58x) valuing AIRPORT at a higher TP of RM8.38 (from RM7.59) with an unchanged MP rating. We believe our upgrade towards AIRPORT's valuation is justifiable given the (i) strong recovery of traffic in Turkey, which is expected to continue, and (ii) increasing demand for travel in Malaysia on the back of increased capacities by airlines. Also, we note that our new TP implies FY18E EV/EBITDA of 10.0x, implying a +0.5SD over the 3- year historical range, which is deemed fair.

Source: Kenanga Research - 12 May 2017