1H18 CNP of RM215.6m is in line with our/consensus full- year estimates at 54%/49%, respectively. A 5.0 sen dividend was declared, short of our full-year expectations of 14.0 sen. No changes to FY18/19E earnings. Maintain UP with unchanged TP of RM8.60 on PBV of 1.72x.

In line. 1H18 CNP of RM215.6m came in within our/consensus forecasts accounting for 54%/49% of full-year estimates, respectively. A 5.0 sen dividend was declared as expected, below our full-year expectations of 14.0 sen. Note that we derived our CNP of RM215.6m after excluding the gains in disposal of GMR Male (RM28.2m) and GMR Hyderabad (RM258.4m).

Result highlights. 1H18 CNP of RM215.6m improved 120%, YoY backed by revenue growth (+8%) coupled with improvements in operating margins (+4ppt). The revenue growth is driven by encouraging passenger traffic growth, especially international traffic and lower staff cost, which subsequently improved its operating margin. QoQ, 2Q18 CNP was down by 50% attributable to several factors, i.e. (i) weaker revenue (-5%) arising from lower international traffic coupled with the adjustment in MARCS PSC, (ii) lower contribution from its retail and commercial revenue, and (iii) compression in operating margins (- 4ppt) and spike in tax (+40%).

Highlight of the briefing would be the development over stake sale of ISG. However, management maintained their stance that they are still looking out for a strategic stake partner that could value-add to their Turkey business, i.e. extension of concession or enhance traffic growth with no commitment on timeline of the potential divestment.

Outlook. While AIRPORT’s performance is commendable, we believe there is a lot more to be done given that management is working relentlessly to meet MAVCOM’s QoS (Quality of Service) framework, which is expected to be rolled out in stages. To recap, management have planned CAPEX of RM600-700m over 2-3 years to upgrade their infrastructure to meet or exceed QoS requirement. That said, we are also anticipating the study on new PSC charges from MAVCOM which could be favourable or detrimental to AIRPORT’s prospects.

Earnings maintained. Post results, no changes to our FY18-19E earnings.

Maintain UP with unchanged TP of RM8.60. Our TP is based on unchanged PBV of 1.72x PBV 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. While we believe that there is great potential in AIRPORT, we do not see any near-term catalyst pending clarity and direction from MAVCOM on the on-going developments i.e. new PSC charges, and RAB model, which could potentially prompt us to upgrade our valuation and recommendation.

Risks to our call include: (i) higher-than-expected passenger growth, and (ii) sharp swing in forex MYR/EUR.

Source: Kenanga Research - 29 Aug 2018