9M17 CNP of RM166m accounted for 68%/65% of our/consensus estimates of which we deem broadly inline on expectation of a stronger 4Q17 from seasonality factors. No dividends declared as expected. Maintain our earnings forecast and reiterate our MP call with an unchanged TP of RM8.38 based on 1.74x Fwd PBV.

Broadly inline. 9M17 CNP of RM166m accounted for 68%/65% of our/consensus estimates of which we deem broadly inline as we are expecting a stronger 4Q17 from seasonality factors. No dividends declared as expected.

Results highlight. 9M17 CNP of RM166m reversed from a loss of RM7.1m in 9M17 due to: (i) improvement in revenue (+10%) from higher passenger movements in Malaysia and Turkey (+8.6%), (ii) lower depreciation and amortization charges (-9%) from the 35-year extension in AIRPORT's Operating Agreement with the government in January, (iii) higher associate contributions (+12%), and (iv) lower effective tax rates by 22ppt.

3Q17 CNP of RM65m increased 25% QoQ on the back of increased revenue (+10%) from increased passenger volumes from Malaysia and Turkey (+6.1%) and lower effective tax rates (-9ppt).

Outlook. For the remainder of FY17, we expect Turkey passenger volume to improve from current YTD growth rate of 4.0% (target of +7.0%). We see encouraging stats in their Oct passenger growth, which registered YoY growth of +6.6% (International +10.3%; Domestic +4.9%). Turkey’s growth is also supported by the referendum held on 16 April 2017, which adopted 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 of 7% growth rate in Turkey and Malaysia’s passenger growth rate of 10% for FY17.

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

Maintain MP with an unchanged TP of RM8.38 based on FY18E Fwd. PBV of 1.74x (+1.5SD). We believe our applied +1.5 SD is fair given the better earnings prospects from the new PSC structure implemented since the beginning of FY17 and the operating agreement extension.

Potential re-rating catalysts are (i) stronger-than-expected recovery in Turkey, and (ii) higher-than-expected passenger growth in Malaysian operations.

Source: Kenanga Research - 27 Nov 2017