INVESTMENT HIGHLIGHTS

• MAHB recorded RM158.0m core PATAMI for 1QFY18

• Stark improvement from last year

• Driven by international sector

• Maintain BUY with an adjusted TP of RM9.88

Above expectation. MAHB’s 1QFY18 net earnings came in above expectations even after excluding one-off gains at RM158.0m. It accounted for 38.3% and 41.4% of ours and consensus’ expectations respectively. Higher than expected contribution from international sector was the main reason for the better than expected results.

Higher international traffic growth. 1QFY18 revenue rose +8.8%yoy (without ICI2), comparable to the +6.6%yoy weightedaverage growth of passengers’ traffic in both Malaysia and Turkey. Overall international traffic grew +11.8%yoy, showing robust demand of the particular segment. This was largely contributed by visa relaxation measures for Chinese and Indian tourists, Umrah traffic and increased tourism promotion. The stark improvement of international traffic had positive implications on PSC, retail and rental revenue which together constitutes 74.4% of 1QFY18 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 +10.5%yoy for the Group.

2) International passengers have a higher average retail spend; spurring an increase in retail revenue by +6.1%yoy. In comparison to last year, retail segment’s growth was notably slower. This was partly due to higher price adjustments at MAHB’s retail stores.

3) Higher retail revenue led to positive rental reversion rates with rental revenue per m² rising +8.6%yoy from RM2.9k to RM3.1k which led to a +5.1%yoy increase in rental revenue.

Slight tick-up in overall expenses. Despite stark improvement in revenue, overall direct expenses only increased marginally by +2.4%yoy, as a result of cost savings from direct labour and direct overheads. Operationally, staff cost was the highest with +11.5%yoy growth from the same period last year. However, this was already expected with average 4-6% yearly salary increment and higher headcounts.

Maintain BUY with adjusted TP of RM9.88 (from RM9.80) based on our DCF assuming WACC of 7.8% and Beta of 1.1. We are adjusting upward our TP as we take into account the higher than expected contribution from international sector. Consequently, this will have a positive effect on retail and rental revenue as well. Hence, our EBITDA is raised by +13.0% for FY18. We continue like MAHB stemming from the positives which include 1) the expansion of international passengers traffic in Malaysia and 2) capacity expansion and entries of foreign airlines, catering to long-term structural demand of air travel. Hence, we maintain our BUY call.

Source: MIDF Research - 30 May 2018