AIRPORT’s 7M17 total passenger registered growth of 9.2% YoY, in line with our 9.2% forecast. We maintain our Malaysia passenger growth forecast of 10.0% and Turkey’s growth forecast of 7.0%. No changes to our FY17-18E earnings estimates. Maintain MP with an unchanged TP of RM8.38.

7M17 passenger growth within expectations. 7M17 passengers (including ISG) registered growth of 9.2% YoY which is in line with our total MAHB growth forecast of 9.2% (+10.0% for Malaysian operations; +7.0% for Turkey operations).

Malaysian operations review. In July, AIRPORT’s passenger in Malaysia increased 5.1% YoY. International passengers were up 11.7% while domestic passengers contracted 1.0% YoY. The overall increase in international traffic was due to competitive fares, visa relaxations in China and India and currency advantages for foreigners. The slight decrease in domestic passengers were due to seasonality factors i.e. Hari Raya holidays fell on June for FY17 while it was in July for FY16.

Steady KLIA traffic. For July, KLIA Main registered growth of 2.5% YoY with international passenger registering positive growth of 10.8% while domestic traffic contracted 17.3%. International growth is supported by increased seat capacities by airlines and stronger travel demand while domestic contraction were due to seasonality factors as explained above. Meanwhile, KLIA 2 traffic’s positive growth continued, at 16.3% YoY (International: 16.5%; Domestic: 15.9%), which we believe is attributable to strong growth from AIRASIA and AAX.

Double-digit growth in Turkey operations. ISG Airport’s passenger growth for July registered the fifth consecutive YoY growth in FY17 at +12.7% (international +15.0%; domestic +11.6%). We are positive on the growth registered for 7M17 in Turkey (+3.5% 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 this positive growth to continue, underpinned by stronger tourist arrivals. We note that this is also the first time Turkey had registered double-digit growth since May 2016.

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 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 lies with: (i) stronger-than- expected recovery in Turkey, and (ii) higher-than-expected passenger growth in Malaysian operations.

Source: Kenanga Research - 11 Aug 2017