AIRPORT’s 6M17 total passenger registered growth of 9.6% YoY-Ytd, in line with our 9.2% target. We maintain our Malaysia’s passenger growth target of 10.0% and Turkey’s growth target of 7.0%. No changes to our FY17-18E earnings estimate. Maintain MP with an unchanged TP of RM8.38.

1H17 passenger growth within expectations. 1H17 passengers (including ISG) registered growth of 9.6% YoY-YTD which is in line with our total MAHB growth target of 9.2% (+10.0% target for Malaysian operations; +7.0% target for Turkey operations).

Malaysian operations review. In June, AIRPORT’s passenger in Malaysia increased 13.5% YoY. International and domestic passengers were up 17.1% and 10.0%, respectively. The overall increase was due to increased travel demand in addition to visa relaxations, currency advantage, various tourism promotional efforts and seasonality, i.e. Hari Raya holidays. We note that Malaysia’s average load factor increased 0.3ppt to 74.7% on the back of increased aircraft capacities.

Stronger KLIA traffic. For June, KLIA Main registered growth of 10.9% YoY with international passenger registering positive growth of 15.6% while domestic traffic contracted 2.4%. Growth is supported by increased seat capacities by airlines and stronger travel demand. Meanwhile, KLIA 2 traffic’s positive growth continued, registering 19.0% YoY (International: 20.3%; Domestic: 16.5%), which we believe is attributable to strong growth from AIRASIA and AAX.

Improving Turkey operations. ISG Airport’s passenger growth for June registered the fourth consecutive YoY growth in FY17 of +7.5% (international +11.3%; domestic +5.8%). We are positive on the growth registered for 1H17 in Turkey (+1.6% YoY YTD) given that they had previously registered negative YoY growths since the negative streak of events, which shook Turkey since early FY16. We foresee 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 attempted coup that happened in FY16.

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

Maintain MP with an unchanged TP of RM8.38. Post traffic review, we maintain our MARKET PERFORM call on AIRPORT with an unchanged TP of RM8.38 based on FY18E Fwd. PBV of 1.74x (+1.5SD). We believe our applied +1.5SD 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. That said, we believe rerating catalysts lies with: (i) stronger-thanexpected recovery in Turkey, and (ii) higher than expected passenger growth in Malaysian operations

Source: Kenanga Research - 11 Jul 2017