INVESTMENT HIGHLIGHTS

• Total passenger movements (including ISGA) for MAHB advanced +0.5%yoy in October 2018

• Route restructuring by airlines boosted international traffic at other MAHB airports

• The remaining two months expected to be strong with occurrence of public holidays

• Maintain BUY on the with unchanged TP of RM9.88 per share

Passenger traffic in October 2018 remain steady. The October passenger traffic for MAHB airports (including ISGA) grew by +0.5%yoy to 10.7m passengers, extending its gains for the fifth consecutive month. The growth was mainly attributable to ISGA’s steady passenger traffic growth of +5.6%yoy buttressed by its international sector following Pobeda Airlines’ move to: (i) add another route; and (ii) introducing daily flights to and from St. Petersburg, Russia. ISGA’s strong passenger numbers helped to mitigate the latent air travel demand in Malaysia.

Other MAHB airports benefited from route restructuring. Domestic traffic for Malaysia in October 2018 declined by -1.8%yoy to 3.8m passengers, mainly dragged by the –11.0%yoy drop in KLIA Main Terminal. For the international sector, passenger traffic in Malaysia also took a breather, decreasing by -0.8%yoy. The restructuring of routes by airlines offering direct international connectivity from other MAHB airports instead of passing through KLIA has seen a +10.1%yoy increase in international passengers at these airports. Nonetheless, this was insufficient to outweigh the decline seen at KLIA. While the departure levy set to be imposed in June 2019 for outgoing international passengers will spur domestic travel, sensitivity towards the increase in passenger service charges (PSC) for international destinations has always been minimal, historically. Moreover, we reckon the overall tourism initiatives outlined in Budget 2019 could uphold the demand in the nation’s tourism factor, supporting the overall load factor at MAHB airports.

Pinning on the year-end seasonal factor. We expect the travel demand to rebound in the remaining two months. In November and December, there will be four public holidays falling on Tuesdays; Deepavali, Maulidur Rasul, the birthday of Sultan of Selangor, and Christmas. This will likely encourage Malaysians to extend their leave and travel. On the looming risks of rising fuel prices, MAHB has minimal exposure to changes in fuel price driven by its strong mix of domestic and international passengers that will be the strongest in the fourth quarter. The low sensitivity of air travel towards charges should not affect travel demands. We maintain BUY call on MAHB with a TP of RM9.88 per share.

Source: MIDF Research - 13 Nov 2018