Results’ highlights. QoQ, 3QFY19 revenue rose 7.5% thanks to higher revenue from both airport and non-airport operations. Airport operations’ revenue increased by 7.3% due to higher aeronautical revenue (+7.5%) mainly from their Turkey operation. The Malaysian operation’s 3QFY19 revenue grew by 5% QoQ on higher passenger movements (+4%). The Turkey operation’s revenue grew 18% QoQ on higher international passenger growth (+21%). Non-airport operations revenue rose 10.7% due to higher contributions from the project and repair maintenance business. Overall passenger traffic (including Turkey Istanbul Sabiha) recorded 7% QoQ growth where international and domestic passenger movements increased by 8% and 6%, respectively. In Malaysia, international passengers rose 4% due to improvement in Asean (+6%) and non-Asean (+2%). This brings 3QFY19 CNP to RM197.9m (+23.6% QoO) due to higher revenue (+8% QoQ) and boosted by a maiden profit achieved by ISG of RM28m compared to a loss of RM12m in 2QFY19. No dividend was declared in this quarter as expected.

YoY, 9MFY19 revenue rose 7.5% underpinned by growth in airport operations driven by sustained growth in passenger and aircraft movements. Aeronautical revenue segment grew by 15.1%, driven by strong passenger growth. Malaysia operation recorded passenger growth of 6.0% (international: +2.3%, domestic: +10.0%). The passenger traffic in ISG rose 2.7%. The non-aeronautical revenue increased by 3.8% driven by the concessionaires and retailers from Turkey operation. Non-airport operations revenue increased by 5.4% mainly contributed by the project and repair maintenance business. This brings 9MFY19 CNP to RM507.5m (+23% YoY) excluding fair valuation of investment in GMR Hyderabad International Airport Limited (RM258.4m) and gain on disposal of investment (RM28.2m) in 9MFY18 due to: (i) lower finance cost (-8%), and (ii) narrower loss of RM19.2m in 9MFY19 compared to a loss of RM138.9m recorded in 9MFY18.

RAB is re-rating catalyst. Malaysia Aviation Commission (MAVCOM) reaffirmed the implementation of Regulated Base Asset (RAB) model framework-led tariff on aeronautical charges or Passenger Service Charge (PSC) for Malaysia Airports Holdings Berhad (MAHB) and reiterated its stance as having statutory right to set the PSC due to be implemented for FY20 to FY22 with a WACC of 10.88%.

We raise our FY19E/FY20E net profit by 13%/5%. Hence, we upgrade our FY19E/FY20E net profit by 13%/5% as we assumed a profit of RM40m/RM50m in Turkey compared to a loss of RM50m/RM30m previously.

Reiterate OP. Correspondingly, our TP is raised from RM9.50 to RM9.90 based on unchanged 22x FY20E EPS (at 5-year historical forward mean) which is at a 20% discount to regional peers’ average to reflect MAHB’s relatively smaller market capitalisation. We like MAHB as an attractive proxy play on the propensity for air travel in the region due to rising per capita income and it is also well-entrenched because of its monopolistic position. Reiterate Outperform.

Risks to our call include: (i) lower-than-expected passenger growth, and (ii) weaker-than-expected WACC from the RAB.

Source: Kenanga Research - 28 Nov 2019