INVESTMENT HIGHLIGHTS

• MAHB had a promising start to the year

• International traffic drove up PSC, retail and rental revenue

• Increase our TP to RM8.05

• But downgrade to NEUTRAL due to limited upside

• Partnership with Alibaba will not commence immediately

A promising start to the year. MAHB reported 1QFY17 core PATAMI of RM62m which was a tad above our estimates, coming in at 28% of our full year forecast. A better than expected growth in international traffic was the main reason for the better than expected results.

Better international traffic growth. First quarter revenue rose +7.3%yoy, almost identical to passenger traffic growth for the Group of +7.5%yoy. Positively, the ratio of international traffic to domestic traffic rose 1ppt to 50:50 at airports in Malaysia, as the sector grew a robust +9.5%yoy in the first quarter. This was partly contributed by a surge in Chinese tourists of +28%yoy. The higher proportion of international traffic has positive implications on PSC, retail and rental revenue, which together represent 75% of total revenue:- 1) The Passenger Service Charge (PSC) rate for international traffic is considerably higher compared to domestic traffic; hence a higher ratio of international traffic drove PSC revenue up +14%yoy for the Group. 2) International passengers have a higher average retail spend, spurring an increase in retail revenue by +12%yoy. 3) Higher retail revenue led to positive rental reversion rates with rental revenue per m² rising +16%yoy from RM2.5k to RM2.9k which led to a +8.1%yoy increase in rental revenue.

Rosier outlook. We expect expenses to tick up in 2017 due to 1) staff salary increments, 2) higher maintenance expenditure in klia2 following the expiry of its defect liability period and 3) annual rise in user fee rate by at least 25 basis points per its operating agreement. However, this would be largely offset by lower quarterly depreciation charges of RM35m-RM38m following the extension of its operating agreement. In addition, passenger traffic at both Malaysian airports and ISGA looks to be gaining traction. ISG in particular performs better in the upcoming summer travel period, especially the high yielding international sector.

Downgrade to NEUTRAL but increase our TP to RM8.05 (from RM7.75). Having ascended +25.4% year-todate to RM7.60, which is just shy of our previous TP of RM7.75, we downgrade the stock to NEUTRAL with limited upside remaining. However, our TP is raised to RM8.05 following an upward revision to our FY17 earnings forecast by 6%. This follows the better the than expected international passenger traffic which has a positive effect on retail and rental revenue as well. Our TP is derived using the DCF method assuming WACC of 7.7% and Beta of 1.1.

Partnership with Alibaba will not commence immediately. We opine that the recent run up in share price could also be partly due to an MOU signed between MAHB and Alibaba’s logistics arm, Cainiao to explore the possibility of setting up an e-fulfilment hub for storage and distribution of e-commerce goods. However, details have yet to be finalised and could take 2 to 3 years before the first revenue is recognised, in our view.

Source: MIDF Research - 2 May 2017