AIRPORT registered 6M18 passengers growth of 5.2% YoY- YTD, which we deem in line with our 8.5% forecast as we expect stronger growth in the months ahead. No change to our FY18-19E CNP. Maintain MP with an unchanged TP of RM8.60 based on 1.72x FY18E PBV.

6M18 traffic picking up. AIRPORT’s 6M18 passengers (including ISG) registered growth of 5.2% (+3.0% for Malaysian operations and +12.4% for Turkey operations) YoY-YTD which we deem in line with our total growth forecast of 8.5% (+8.0% for Malaysian operations, +10.0% for Turkey operations) as we see stronger growth numbers in the month boosted by festive seasons, i.e. Hari Raya holiday season.

Malaysian ops. review. For June, passengers in Malaysia grew 9.7% YoY (international: +8.3%; domestic: 11.1%). Hari Raya was the main driver for the growth in June passenger traffic. That said, two weeks of school holiday, which coincided with Hari Raya, was also one of the factors for the boost in traffic.

KLIA and KLIA2 traffic. In June, KLIA Main grew 6.7% YoY with international and domestic traffic increase by 7.3% and 4.5%, respectively. KLIA 2’s positive traffic growth continued, at 12.5% YoY (international: 6.5%; domestic: 25.2%), mainly driven by the festive season as mentioned above. As for KLIA2, it was partly attributable to growth from AIRASIA as they increased their capacities through higher plane utilisation as well as the number of planes.

Turkey operations. ISG Airport’s passenger growth for June 2018 grew 9.1% (international +12.0%, domestic +7.7%) YoY, also due to similar reasons mentioned above. Its 6M18 passenger traffic continued to grow at an encouraging pace of 12.4%

Outlook. It was reported in the news that MAVCOM’s chairman would be replaced, but we believe that the anticipated QoS (Quality of Service) framework will still be implemented by MAVCOM in 3Q18 for airports (starting with KLIA1 and 2) with objectives to achieve higher quality of service for passengers. This could pose as downside risks for AIRPORT’s earnings given that MAVCOM has proposed a financial penalty of up to 5% of aeronautical revenue, which could dent our FY18E CNP by 7% for every 1% penalty. That said, in order to mitigate penalties, AIRPORT has increased their planned CAPEX to RM600- 700m (from typically RM300m) in FY18-19 to upgrade their infrastructure, i.e. trains, baggage systems and toilets.

Earnings unchanged. Post review, we maintain FY18-19E earnings.

Maintain MARKET PERFORM with an unchanged TP of RM8.60. Our TP is based on PBV of 1.72x PBV which is pegged at +0.5SD to its 2-year average. We think our applied +0.5SD level is reasonable given the recovery of passenger traffic at Turkey on the back of ISG’s terminal capacity expansion by 2H18. Risks to our call include: (i) lower-than-expected passenger growth, and (ii) unexpected epidemic/terror attacks.

Source: Kenanga Research - 11 Jul 2018