INVESTMENT HIGHLIGHTS

• FY18 normalised earnings missed our expectations but registered a yearly growth of +82.8%yoy

• Overall international traffic continued to outpace domestic traffic with a +6.0%yoy growth

• Rental revenue grew despite the commercial reset period

• Maintain BUY with a revised TP of RM9.44 per share

Below our expectations but still chartered yearly growth. MAHB’s FY18 normalised earnings (after excluding one-off gains) of RM439.5m came in below expectation, accounting for 85.7% of our estimates. The variance was due to higher utilities cost which jumped by +14.2%yoy. Despite falling short of estimates, MAHB’s FY18 normalised earnings was higher by a staggering +82.8%yoy.

Higher international traffic growth. FY18 revenue rose by +4.3%yoy. This was in-line with the +4.0%yoy growth of passengers’ traffic in both Malaysia and Turkey for the period. Overall international traffic grew +6.0%yoy which outperformed the +2.4%yoy growth recorded for domestic passenger traffic. This was buoyed by continuous increased flight connectivity, attributable to supportive visa policy and healthy tourism landscape. We observed that the improvement of passengers’ traffic had positive impact to PSC and rental revenue which together constitutes 61.1% of FY18 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 (at 52.2%) for airports in Malaysia drove the PSC revenue up +5.5%yoy for the Group.

2) Despite the implementation of the commercial reset at KLIA Main Terminal, extension of permanent contracts and casual leasing increased rental revenue. As such, rental revenue per m² rose from RM11.8k to RM12.6k, leading to a +5.9%yoy increase in MAHB’s overall rental revenue.

Direct costs inched lower. While revenue improved, we were encouraged to see that overall direct costs dropped by -4.9%yoy for FY18. This was a result of cost savings from direct materials (-5.9%yoy) and direct overheads (-7.9%yoy) as retail sales dipped due to the ongoing commercial reset strategy. Staff costs which represent the biggest chunk of operating costs were lower, amounting to RM689.6m. The -3.2%yoy decline in staff costs was due to write back of bonus provision of RM21.0mil which was offset against salary increment.

Source: MIDF Research - 1 Mar 2019