AIRPORT’s 11M17 total passenger registered growth of 8.1% YoY-YTD, in line with our 9.2% forecast. We maintain our growth forecasts for Malaysia passenger growth at 10.0% and Turkey growth at 7.0%. No change to our FY17- 18E earnings estimates. Maintain MP with an unchanged TP of RM8.38.

11M17 passenger growth within expectations. 11M17 passengers (including ISG) registered growth of 8.1% YoY-YTD 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 November, AIRPORT’s passenger in Malaysia increased 4.8% YoY. International passengers were up 13.2% while domestic passengers decreased 3.0% YoY. We believe the overall increase in international traffic was due to visa relaxation for India and China, competitive fares as well as the favourable exchange rate for foreign tourists. Meanwhile, the decrease in domestic demand due to capacity cuts from Malaysia Airlines and Malindo as they rationalised their capacity allocations were partially masked by increased capacity by AIRASIA. Average load factor was at 74.1% (- 1ppt).

KLIA traffic review. In November, KLIA Main registered growth of 1.5% YoY with international passenger registering a positive growth of 11.7% while domestic traffic contracted 25.7%. KLIA Main International growth was supported by increased seat capacities by airlines (Malindo Air, Xiamen Airlines, Hong Kong Dragon Airlines, Saudi Arabian Airlines and Emirates) and stronger travel demand while the domestic contraction was due to reduction in capacity by Malaysia Airlines, Firefly and Malindo Air as explained above. Meanwhile, KLIA 2 positive traffic growth continued, at 14.2% YoY (International: 14.2%; Domestic: 14.3%), which we believe is attributable to strong growth from AIRASIA and AAX as they increased their capacity through higher utilisation of planes.

Continued growth in Turkey. ISG Airport’s passenger growth for November registered the 9th consecutive YoY growth in FY17 at a healthy +10.9% (international +15.6%, domestic +8.9%). We see encouraging growth registered for 11M17 in Turkey (+4.8% YoY-YTD) given that it had previously registered negative YoY growth since the negative streak of events which shook Turkey since early FY16. We maintain our +7.0% forecast and look for a strong growth in December, especially with the international side to drive passenger traffic closer to our target.

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

Maintain MP with an unchanged TP of RM8.38. Post-traffic review, we maintain our MP call and TP of RM8.38, which 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 believe rerating catalysts lies with: (i) stronger-than-expected recovery in Turkey, and (ii) higher-than-expected passenger growth in Malaysian operations. Risks to our call include: (i) lower than expected travel demand and (ii) travel threats from Turkey.

Source: Kenanga Research - 13 Dec 2017