Malaysia Airports Holdings Berhad (MAHB) registered FY19 passenger growth of 5.6%, in line with our 5.2% forecast with its network of airports (including Istanbul SGIA) recorded 140.6m passenger movements in 2019. International passenger rose 6.2% while domestic movements increased by 5.0%. No changes to our FY19E/FY20E earnings forecasts. Maintain OP with a TP of RM9.90.

QoQ, 4QFY19 overall passenger growth fell 2%. MAHB’s 4QFY19 (including Istanbul Sabiha) passenger growth recorded a QoQ decline of 2% to 36m in passenger due to the seasonally slower 4QFY19 in Sabiha. In Malaysia, international passengers rose 3% due to improvement in Asean (+3.2%) and non-Asean (+3.1%) sectors while domestic passenger movements came in flat. The growth is largely driven by KLIA main with growth in international (+4.7%) and domestic (+4.7%). KLIA2 saw growth for both Asean and non-Asean sectors of 1% and 7%, respectively. We believe the passenger traffic movements were driven by continuous tickets promotions and fleet expansion by airlines. Istanbul Sabiha Gokcen International Airport (international and domestic passengers’ traffic fell 12% and 11%, respectively, following the end of summer holidays.

FY19 passenger growth came in line with our forecast. FY19 passenger growth of 5.6% is deem in line with our 5.2% forecast. MAHB’s network of airports (including Istanbul SGIA) recorded 140.6m passenger movements in 2019, a 5.6% growth over 2018. International passenger movements recorded 67.3m with a year-on-year increase of 6.2% while domestic movements increased by 5.0% registering 73.3m passengers. YoY, FY19 overall aircraft movements in 2019 increased by 3.1% due to international (+4%) and domestic (+2.6%) sectors. In Malaysia, passenger movements registered a 6.1% growth with 105.2m passenger movements due to International (+3.0%) and domestic (+9.5%) sectors. International movements continued to retain more than 50% of the passenger market share for 2019 which is of higher yield. Istanbul SGIA passenger traffic registered a growth of 4.1% in 2019, driven by international sector (+21%) which more than offset lower domestic sector (-4%). Twelve of the twenty-one MAHB’s main airports especially in Sabah and Sarawak registered high double-digit growth in passenger movements. Overall aircraft movements increased by 3.3%. International and domestic aircraft movements increased by 0.6% and 5.2%, respectively. Average load factor was 75.0% in 2019, 0.7 percentage points more than 2018.

RAB framework hanging in the balance? Following the proposed merger between Malaysia Aviation Commission (MAVCOM) and Civil Aviation Authority of Malaysia, the implementation of Regulated Asset Base (RAB) could be delayed or shelved. We highlight that the RAB has yet to be implemented of which we have yet to impute into our earnings model. If the RAB falls through, we expect MAHB to negotiate for higher MARCS compensation.

Re-iterate OP. TP is 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.

Risks to our call include: (i) lower-than-expected passenger growth.

Source: Kenanga Research - 13 Jan 2020