FY19 Core Net Profit (CNP) of RM537.5m (+26%) came in below expectations at 85%/90% of our/consensus forecasts. The negative variance from our end is due to lower-thanexpected results from Turkey. Downgrade FY20E net profit by 28% as we cut our passengers growth and forecast a loss instead of a profit for Turkey. TP is lowered from RM9.90 to RM7.20 based on 22x FY20E EPS. We continue to like MAHB as an attractive proxy play on the propensity for air travel due to rising per capita income and its wellentrenched monopolistic position. Reiterate OP.

Results’ highlights. QoQ, 4QFY19 revenue fell 0.8% no thanks to lower contribution from non-airport operations (-20%) but mitigated by higher base airport operations (+3.8%). Airport operations revenue increased by 4% due to higher Parking and Landing (+3%) and aeronautical revenue (+1%) which was dragged down by lower Turkey operation. The Malaysian operation’s 4QFY19 revenue grew by 5% QoQ on higher passenger movements (+1.4%). The Turkey operation’s revenue fell 15% QoQ on lower domestic (-11%) and international (- 12%) passengers’ growth. Non-airport operations revenue fell 21% due mainly to lower contributions from the project and repair maintenance businesses. Overall passenger traffic (including Turkey Istanbul Sabiha) was lower at 2% QoQ growth while international and domestic passenger movements fell by 0.3% and 3.5%, respectively. In Malaysia, international passengers rose 1.4% due to improvement in Asean (+3%) and non-Asean (+3%). This brings 4QFY19 CNP to RM30m (- 85% QoO) due to losses in ISG (losses of RM40m vs 3Q19 profit of RM28) and higher employee benefits expenses (bonus provision), repair and maintenance expenses, and a network glitch during the period. An interim DPS of 5.0 sen was declared in 2019. We expect a final dividend in 2Q 2020.

YoY, FY19 revenue rose 7.5% underpinned by growth in airport operations driven by sustained growth in passenger and aircraft movements. Aeronautical revenue segment grew 15.1%, driven by strong passenger growth. Malaysia recorded a 6.1% growth with 105.2m passenger movements due to International (+3.0%) and domestic (+9.5%) sectors. 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%). This brings FY19 CNP to RM537m (+26% YoY) excluding fair valuation of investment in Hyderabad Airport (RM258.4m) and gain on disposal of investment (RM28.2m) in FY18 and a narrower loss in Turkey of RM80m in FY19 compared to a loss of RM209m in FY18.

Outlook. We expect MAHB to be hit by the COVID-19 in terms of passenger traffic growth and potential tariff rebates or discounts on its retail rentals. Management highlight that MAHB is still talking to the Government in terms of mechanism on the recently announced rebates on rental for premises at the airport as well as landing and parking charges. For illustration purposes, assuming a 20% rebate on both rental and landing & parking charges and assuming a 6-month period, this accounts for 10% of our FY20E net profit. Management is not ruling out RAB and discussion with the relevant authorities is still on-going.

Downgrade FY20E net profit by 28%. All in, we (i) cut our passenger growth assumption in FY20E from 7% to 4% and (ii) forecast a loss of RM40m in ISG compared to a profit of RM40m in FY20.

Re-iterate OP. Correspondingly, our TP is cut from RM9.90 to RM7.20 based on unchanged 22x FY20E EPS (at 5-year historical forward mean). We continue to like MAHB as an attractive proxy play on the propensity for air travel due to rising per capita income and its wellentrenched monopolistic position. Risks to our call include: (i) lowerthan-expected passenger growth, and (ii) weaker-than-expected WACC from the RAB

Source: Kenanga Research - 2 Mar 2020