INVESTMENT HIGHLIGHTS

• Total passenger movements (including ISGA) advanced +1.3%yoy in May 2019

• Yearly growth for domestic passenger traffic in Malaysia during May 2019 remained on an upward trend despite the fasting month

• Cumulative international traffic in Malaysia (for the first five months of 2019) reached the highest ever at 21.6m

• Turkey operations buttressed by an increase in international flight frequencies amidst route restructuring

• Maintain BUY with an unchanged TP of RM8.80 per share

Passenger traffic growth continues in May 2019. The May 2019 passenger traffic for MAHB airports (excluding ISGA) increased +2.2%yoy to 7.9m passengers. On a cumulative basis, the passenger traffic for airports in Malaysia in the first five months of 2019 posted a +4.1%yoy increase to reach 42.0m, making up 41% of our FY19 passenger traffic growth estimates of 102.5m.

Route restructuring boosted ISGA’s international traffic. For ISGA, international passenger traffic soared +13.0%yoy to reach 1.0m for the same month, offsetting the -8.0%yoy decline in domestic passenger traffic to 1.7m. This brings ISGA’s overall passenger growth for the first five months of 2019 to +18.7%yoy after hitting 5.2m passengers. The catalyst for the international sector was the ongoing route restructuring by carriers since late 2018 such as Pegasus Airlines to expand into more international routes. The latest route addition in May 2019 included destinations to Basra while Manchester and Venice will be introduced later in July 2019. Overall, MAHB’s total cumulative passenger traffic (including ISGA) grew by +3.7%yoy to 55.7m for the first five months in 2019.

Domestic traffic continues its upward trend. Domestic traffic for airports in Malaysia in May 2019 continued its upward trend, increasing by +3.5%yoy to 3.8m passengers despite the almost full Ramadhan fasting month which began on 6 May 2019. The effects of lesser travel during the fasting period was outweighed by the school holidays which took place towards the end of May, not too far away from the Hari Raya Aidilfitri holiday period. As a result, the y-o-y growth seen in domestic traffic extended to its seventh consecutive month. The bulk of the growth was attributable to the +5.1%yoy jump in domestic traffic at airports ex-KLIA. We attribute the growth to the shift in airlines capacity from the international to the domestic sector.

International traffic remains firm. International passenger traffic in May 2019 for Malaysian operations increased by +1.0%yoy to reach 4.0m passengers. While we note that the international passenger traffic was the lowest in seven months, nonetheless it was actually the highest ever on a five-month cumulative basis at 21.6m. The ratio of international to domestic passengers for Malaysian operations for the first five months of 2019 remained at 51:49 which bodes well for MAHB as the passenger service charge for international passengers is higher compared to domestic passengers. MAHB targets to bring in 10 new airlines to Malaysia, especially to its five main airports. This will maintain the stronger mix of international passengers which bodes well for MAHB in terms of the higher passenger service charges collected; RM35 for non-ASEAN and RM73 for beyond ASEAN.

Source: MIDF Research - 11 Jun 2019