AIRPORT’s 8M17 total passenger registered growth of 9.1% 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. Downgrade to UP with an unchanged TP of RM8.38.

8M17 passenger growth within expectations. 8M17 passengers (including ISG) registered growth of 9.1% 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. For August, AIRPORT’s passenger in Malaysia increased 9.4% YoY. International and domestic passengers were up 17.3% and 1.8% YoY, respectively. The overall increase in international traffic was due to the Hajj travel season, the SEA Games Kuala Lumpur 2017, visa relaxation for India and China, competitive fares as well as favourable exchange rate for foreign tourists. Average load factors were up 2.4ppt YoY to 77.0%.

Steady KLIA traffic. In August, KLIA Main registered growth of 4.4% YoY with international passenger registering positive growth of 13.6% while domestic traffic contracted 21.6%. International growth was supported by increased seat capacities by airlines and stronger travel demand while domestic contraction was due to reduction in capacity by Malaysia Airlines, Firefly and Malindo Air. Meanwhile, KLIA 2 traffic’s positive growth continued, at 21.4% YoY (International: 20.0%; Domestic: 24.2%), which we believe is attributable to strong growth from AIRASIA and AAX.

Turkey Operations. ISG Airport’s passenger growth for August registered the sixth consecutive YoY growth in FY17 at +3.7% (international +10.1%, domestic +0.4%). We see encouraging growth registered for 8M17 in Turkey (+3.5% YoY-YTD) given that it had previously registered negative YoY growth since the negative streak of events, which shook Turkey since early FY16. That being said, we note that our +7.0% target for Turkey might be tall order vis-à-vis YTD growth of 3.5% given that domestic passengers growth in Turkey is still relatively volatile and a stable trend has yet to be established. Hence, we look to review our 3Q17 numbers in October if any downward revision is needed.

Unchanged earnings. We make no changes to our FY17-18E earnings forecasts as our underlying assumptions for FY17 passenger growth remain unchanged at 10.0% for Malaysia and 7.0% for Turkey.

Downgrade to UP with an unchanged TP of RM8.38. Post traffic review, we downgrade AIRPORT to UP (from MP) with an unchanged TP of RM8.38 given that its share price had run up recently and we currently do not see further catalysts for room to upgrade. We note that our TP is based on FY18E Fwd. PBV of 1.74x (+1.5SD). We believe our applied +1.5SD is fair given the better earnings prospects from the new PSC structure implemented since the beginning of FY17 and the operating agreement extension. We highlight that we are not using a +2SD for AIRPORT as we remain cautious given that there might be downward risks in our Turkey passenger growth forecast. Furthermore, we note that the only time AIRPORT has ever traded to its +2SD was in Dec-13 when it rallied in anticipation of their 40% proposed acquisitions of ISG and LGM. That said, its share price had retraced sharply post the announcement. We believe rerating catalysts lies with: (i) stronger-than-expected recovery in Turkey, an

Source: Kenanga Research - 12 Sept 2017