INVESTMENT HIGHLIGHTS

• Total passenger movements (including ISGA) advanced +7.2%yoy in July 2019

• Yearly growth for domestic passenger traffic in Malaysia during July 2019 remained on an upward trend despite the end of the festive season

• Cumulative international traffic in Malaysia (for the first seven months of 2019) reached the highest ever at 60.3m

• Turkey operations buttressed by an increase in international flight frequencies amidst new airlines and additional frequencies

• Maintain BUY with an unchanged TP of RM9.43 per share

Passenger traffic growth continues in July 2019. The July 2019 passenger traffic for MAHB airports (excluding ISGA) increased by +7.2%yoy to 9.1m passengers. This is the highest passenger traffic recorded thus far in 2019 and marks the second consecutive month in which traffic was above 9.0m passengers. On a cumulative basis, the passenger traffic for airports in Malaysia in the first seven months of 2019 posted a +5.1%yoy increase to reach 60.3m, making up 59% of our FY19 passenger traffic growth estimates of 102.5m.

ISGA’s international traffic reached a record performance. For ISGA, international passenger traffic soared +17.0%yoy to reach 1.4m for the same month, offsetting the -8.7%yoy decline to 2.0m in domestic passenger traffic. This brings ISGA’s overall passenger growth for the first seven months of 2019 to +2.9%yoy after hitting 20.1m passengers. The catalyst for the international sector was the addition of existing frequencies coupled with introduction of new airlines. For instance, Salam Air commenced two weekly flights from Muscat while Air Arabia Maroc commenced operations from Tangier. Existing airlines such as Pegasus Airlines meanwhile commenced new operations to Manchester, Venice and Casablanca. Overall, MAHB’s total cumulative passenger traffic (including ISGA) grew by +4.5%yoy to 80.4m for the first seven months in 2019.

Domestic traffic continued its upward trend. Domestic traffic for airports in Malaysia in July 2019 continued its upward trend, increasing by +12.9%yoy to 4.5m passengers despite the end of the festive season. We noted that the sequential year growth seen in domestic traffic extended to its ninth consecutive month. The bulk of the growth in July 2019 was attributable to the +14.6%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 July 2019 for Malaysian operations increased by +2.3%yoy to reach 4.7m passengers, the highest since December 2018. This increase was partly contributed by the Hajj movements, new operations by Air Arabia and additional frequencies and routes by AirAsia, Malaysia Airlines Berhad, Malindo Air, Indigo Airlines, Saudi Arabian and Jeju Air.

Mix of international and domestic passengers remains favourable. The ratio of international to domestic passengers for Malaysian operations for the first seven 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 this year, especially to its five main airports. One of the new airlines includes Air Arabia which commenced direct flights between Kuala Lumpur and Sharjah from July 2019. 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.

Reiterate BUY with unchanged TP of RM9.43 per share. Overall, we continue to believe that the departure levy will not be a dampener to passenger traffic growth. This is based on our latest findings which are in addition to our previous analysis highlighted in a report dated 15 April 2019. Therefore, we believe that MAHB will be able to maintain its upward trajectory especially in terms of passenger growth. Furthermore, the relaxation of visa policies for Chinese and Indian nationals visiting Malaysia will also be a contributor. In this case, we opine that the visa relaxation policy may be extended to next year in conjunction with ‘Visit Malaysia Year 2020’. Hence, we reiterate our optimism that MAHB passenger numbers will surpass the 100m mark in 2019, while maintaining a relatively conservative growth rate of 3.5% at 102.5m.

Source: MIDF Research - 14 Aug 2019