• Results within our expectation

• International traffic drove up PSC, retail and rental revenue

• Slightly higher maintenance expected in 2HFY17

• In spite of higher expenses, we anticipate a better 2HFY17

• Maintain BUY with unchanged TP of RM9.98

Results within our expectation. MAHB reported 6MFY17 core PATAMI of RM128m, which was a marked improvement over 6MFY16 core PATAMI of only RM26m. Despite accounting for 38% of our full year forecast (and 52% of consensus), we regard the result as in line as we expect 2HFY17 to be stronger due to seasonal effect. An interim dividend of 5 sen was announced (6MFY16: 4 sen), within our estimates.

PSC revenue was the main revenue driver. 1HFY17 group revenue advanced +8.8%yoy, led by the Malaysian operations (+11.3%yoy) while Turkey was flat (+0.1%yoy). PSC revenue was the key contributor to revenue growth at the Malaysian operations, rising +17.9%yoy, underpinned by passenger traffic growth of +11.2%yoy and higher proportion of international traffic at 50.3% of total pax (6MFY16: 48.8%).

Retail and rental/royalty segments did well too, registering +15.9%yoy and 12.2%yoy growth respectively for the Malaysian operations. Retail sales per pax increased +11.1%yoy while Eraman saw a +14%yoy rise revenue, supported as well by better international traffic. Meanwhile, rental & royalty revenue rose despite lower occupancy rate at klia2 (mid-70% range) as a result of better rental rates and sales volume.

Slightly higher maintenance expenses are projected in 2HFY17 as the defect liability period draws to a close for klia2. Meanwhile, as anticipated, staff costs saw an uptick of 3.7%yoy in 1HFY17 arising from a 3-yearly group wide salary adjustment. The increments are retrospective in nature, adding a one-off RM7-8m in of staff related expenses in 2QFY17. Positively, there was a 3.6%yoy improvement in utility expenses.

Shaping up to be a good year. Notwithstanding the cost pressures, we see further room for improvement for MAHB in 2HFY17. We continue to be bullish on MAHB’s ability to grow its topline, benefitting from continuous capacity expansion by both local and foreign carriers. In addition, we foresee inbound/outbound travel demand to remain buoyant from the easing of entry visa requirements and fare discounting.

Maintain BUY with TP of RM9.98 based on our DCF model assuming WACC of 7.8% and Beta of 1.1. We like MAHB as a proxy to Malaysia’s resilient inbound/outbound travel industry, as the largest airport operator in Malaysia. MAHB received an extension of its operating agreement (OA) which will last until 2069, providing clarity to investors on its longer term prospects as an airport concessionaire. Meanwhile, the company has imposed onto itself a 1-year timeframe for negotiations with the Government on the terms and conditions for its OA extension. Items of interest to us include the rate of user fee it pays to the Government and source of funding for capital expenditure, of which favourable negotiations could prompt upward revisions to forecasts.

Source: MIDF Research - 1 Aug 2017