INVESTMENT HIGHLIGHTS

• MAHB recorded RM209.1m core PATAMI for 9MFY17

• Uplift in earnings buoyed by encouraging passenger growth

• Positive momentum to continue towards year end

• Maintain BUY with an unchanged TP of RM9.98

Within expectation. MAHB’s PATAMI for 9MFY17 climbed higher to RM209.1m (>+100%yoy). For 3QFY17, core PATAMI was RM81.1m vs. RM14.9m in the same period last year. The 9MFY17 earnings was within ours but above consensus expectations accounting for 63.0% and >100% of full year estimates. We deem the results to be in line considering that 4Q will be seasonally stronger in terms of passenger traffic. Over the past three years, 4Q passenger traffic made up at least ~28.0% of full year numbers.

Solid revenue growth was the key driver. The strong PATAMI growth for 9MFY17 was due to the solid growth in revenue, where it grew +10.1%yoy. PSC, retail and rental revenue, which together represents 74.0% of total revenue, grew +13.5%yoy to RM2.6b. The revenue expansion was the result from the strong passenger growth.

International traffic outpaced domestic passengers. For 9MFY17, the group passenger growth was up by +8.6%yoy. Notably, international traffic growth in Malaysia outpaced the domestic advancing at +14.7%yoy. We opine that the commendable growth stemmed from the Malaysia 29th SEA Games which took place in the span of 10 days in August and was considered being the main tourist attraction. This boosted the passenger growth. The higher proportion of international passengers (50.6% of total traffic) has positive implication on the PSC, retail and rental revenue.

Increase in operating expenses. As expected, the group’s overall operating expenses expanded by +9.0% for 9MFY17. Staff, maintenance and user fee expenses were the main contributor as it grew +10.3%yoy to RM1.0b. These together represented 66.1% of MAHB’s OPEX. However, moving forward we expect the cost pressure to be largely offset by lower quarterly depreciation charges of RM35m-RM38m following the extension of its operating agreement.

Positive momentum to continue. Moving forward, we expect this positive traction to continue towards the end of the year stemming from the strong growth (+8.5%yoy) in FY17 passenger traffic thus far. Hence, we are maintaining our FY17 forecast as we believe that MAHB will likely post a stronger 4QFY17 due to seasonal factors.

Maintain BUY with TP of RM9.98 based on our DCF assuming WACC of 7.8% and Beta of 1.1. We like MAHB as a proxy to Malaysia’s resilient inbound/outbound travel industry being 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.

Source: MIDF Research - 27 Nov 2017