1H17 CNP of RM101.0m accounted for 41% of both our and consensus CNP estimates of RM245m and RM247m, respectively, which we deem broadly in-line as we expect stronger quarters ahead from: (i) recovery of Turkey passenger figures, and (ii) seasonality factors in 4Q. A 5.0 sen dividend was declared, which was in line with our estimate. Maintain our FY17-18E earnings post results. Maintain MP with an unchanged TP of RM8.38.

Broadly within expectations. 1H17 CNP of RM101.0m came in at 41% of both our and consensus CNP estimates of RM245m and RM247m, respectively, 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. A 5.0 sen dividend was declared, which was well within our estimate. We note that 1H17 EBITDA of RM962.4m is in line with our and management’s estimates of RM1845m (52%) and RM1797m (54%), respectively.

Results highlight. 1H17 CNP of RM101m improved from a loss of RM3.5m in 1H16 due to: (i) improvement in revenue (+9%) from higher passenger movements in Malaysia and Turkey (+9.6%), (ii) lower depreciation and amortization charges (-12%) from the 35-year extension in AIRPORT's Operating Agreement with the GoM in January, (iii) higher associate contributions (+17%), and (iv) lower effective tax rates by 22ppt. 2Q17 CNP improved 7% QoQ due to: (i) lower depreciation (-6%), (ii) lower financing costs (-6%) as repayment for borrowings for ISG were stretched to 2023 (from 2021), and (iv) lower effective tax rates by 9ppt. We note the lower effective tax rates were attributable to lower PBT contributions from Malaysia QoQ, which led to lower tax while Turkey’s tax returns from deferred tax assets remain flattish.

Outlook. Moving forward, we expect Turkey passenger volume to improve from current YTD growth rate of 1.8% (Target of +7.0%). We see encouraging stats in their June passenger growth, which registered YoY growth of +7.5% (International +11.3%; Domestic +5.8%) and we are positive on the growth for the subsequent months in conjunction with the summer period (June-Sept). The growth is also supported by the recent referendum in Turkey (held on 16th April 2017) which adopt a presidential system of government that 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. All in, we are maintaining our forecast 7% growth rate in Turkey and Malaysia’s passenger growth rate of 10%.

Earnings adjustment. Post results, we make no adjustments to our FY17E-FY18E earnings estimates of RM245m-RM315m, respectively.

Maintain MARKET PERFORM. We maintain our MARKET PERFORM call on AIRPORT with an unchanged TP of RM8.38 based on FY18E unchanged Fwd. PBV of 1.74x (5 year +1.5SD). We believe our applied +1.5SD to our valuation 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 lie with: (i) stronger-than expected recovery in Turkey, and (ii) higher-than-expected passenger growth in Malaysian operations.

Source: Kenanga Research - 1 Aug 2017