AIRPORT’s 5M17 total passenger numbers registered growth of 9.0% YoY-Ytd, in line with our 9.2% target. Maintain our FY17-18E earnings estimates. Downgrade to UP (from MP) with an unchanged TP of RM8.38 given that AIRPORT’s share price has surpassed our target and we currently see no catalyst for further upgrades.

5M17 passenger growth within expectations. AIRPORT’s 5M17 passenger numbers (including ISG) registered growth of 9.0% YoY-YTD which is in line with our total MAHB system growth target of 9.2% (+10.0% target for Malaysian operations; +7.0% target for Turkey operations).

Malaysia Review. In May, AIRPORT’s passengers in Malaysia increased 8.5% YoY. International and domestic passengers were up 15.2% and 2.4%, respectively. The overall increase was due to increased travel demand in addition to visa relaxations, currency advantage and various tourism promotional efforts. We note that Malaysia’s average load factor increased 1.5ppt to 75.1% on the back of increased aircraft capacities.

Strong KLIA traffic. For May, KLIA Main registered growth of 12.7% YoY with international passengers registering positive growth of 17.9% while domestic traffic contracted 1.2%. Growth is supported by increased seat capacities by airlines and stronger travel demand. Meanwhile, KLIA 2 traffic’s positive growth continued, registering 11.5% YoY (International: 13.8%; Domestic: 7.1%) which we believe is attributable to strong growth from AIRASIA and AAX.

Turkey remains positive. ISG Airport’s passenger growth for May registered their third consecutive YoY growth in FY17 of +0.3% (international +1.9%; domestic -0.3%). 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 coup which happened in FY16.

Unchanged earnings. We make no changes to our FY17-18E earnings forecasts.

Downgrading to UNDERPERFORM with an unchanged TP of RM8.38. Despite 5M17 passenger traffic estimates coming within expectations, we downgrade AIRPORT to UNDERPERFORM (from MP) with an unchanged TP of RM8.38 (based on +1.5SD FY18E PBV of 1.74x) as AIRPORT has performed relatively well registering gains of 53% YTD and we currently do not see further catalyst for room to upgrade. We note that while Turkey’s traffic is starting to see improvement, we believe our downgrade is justifiable given that AIRPORT is currently trading at an implied FY18E EV/EBITDA of 10.3x which is above comparable regional peers’ average of 9.0x.

Source: Kenanga Research - 13 Jun 2017