HIGHLIGHTS

• Passenger traffic soared by +14%yoy for Malaysian Airports in October, its second consecutive double digit increase

• Balanced growth was seen, contributed by both international and domestic sectors and spread among all international airports

• Airline load factors remained above 70% despite capacity additions by MAB, Malindo and Airasia Group

• Istanbul SGIA’s displayed strong signs of recovery, growing +3.5%yoy in October after 4 months of declines and flat growth

PASSENGER TRAFFIC FOR AIRPORTS IN MALAYSIA: OCTOBER 2016

Second consecutive month of double-digit growth. Passenger traffic growth in Malaysian airports extended its good run, rising firmly by +14%yoy in the month of October 2016 to record a total of 7.3m passengers. Aside from the low base effect due to Malaysia Airlines Berhad (MAB) cutting capacity in October 2015, the good performance in pax growth is well balanced.

Both domestic and international pax rose by double digits with all international airports registering double digit growth ranging from 12-38%. KKT1 was the best performer, seeing growth of 38% due to MAB and Airasia launching direct services to and from China. Cumulative year-to-date growth increased to +5.4%yoy which is slightly above our forecast of +4%yoy. We expect pax traffic to continue to perform well in the final 2 months of 2016 due to the school holiday period. Furthermore, the government have extended the visa exemption for Chinese tourists to end-2017.

Traffic growth was underpinned by airline capacity expansions. KLIA main terminal building (MTB) saw strong growth of +34.2%yoy in October (ytd: +9%yoy) due to MAB resuming its capacity expansion after a year of cuts. Meanwhile, the MTB’s growth was also aided by Malindo shifting its operations and expanding. Despite KLIA2 losing Malindo to MTB, Airasia and AAX were able to fill in the void, registering year-to-date pax growth of +4.7%yoy in KLIA2. Other highlights from the report include: 1) +4.5ppts yearly increase in average load factors to 71% despite capacity additions; 2) Total aircraft movements grew by +4.5%yoy in October after spending most of the year in negative territory. The driving force would be MAB registering its first positive growth in international capacity on top of additions by Malindo and AirAsia Group;

PASSENGER TRAFFIC FOR ISTANBUL SGIA: OCTOBER 2016

Nascent recovery by ISG. Istanbul Sabiha Gokcen (ISG) International airport recovered to a +3.5%yoy increase in traffic after experiencing a 3 month decline followed by a month of flat growth. This signals that that sentiment is improving following several security incidences that took a hit on travel demand. Meanwhile, improving Turkish Russian ties have also helped ISG stage a rebound in pax traffic. The domestic sector led the push, growing +8.9%yoy to outweigh a decline in international traffic (-6.6%yoy).

Maintain BUY with TP of RM7.60 based on our DCF model assuming WACC of 7.7% and Beta of 1.1. We like MAHB as a proxy to Malaysia’s growing tourism industry as well as being the largest airport operator in Malaysia, operating all but one airport (Senai). Further rerating catalysts for MAHB could come from: 1) Higher than expected capacity addition from airlines; 2) Meaningful third party investments in the KL Aeropolis project; and 3) Further guidance on future PSC revisions.

Source: MIDF Research - 11 Nov 2016