KEY INVESTMENT HIGHLIGHTS

• Total passenger movements (including ISGA) advanced +6.0%yoy in November 2019

• Domestic traffic in Malaysia for November 2019 registered a +6.2%yoy growth mainly contributed by KLIA Main Terminal

• International passenger traffic growth in November 2019 partly contributed by klia2 amidst AirAsia’s profit sharing plans with AAX for KUL-SIN route

• ISGA’s location continues to be the main pull factor for its passenger growth especially for international flights

• Earnings estimates unchanged

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

Passenger traffic growth continues in November 2019. The November 2019 passenger traffic for MAHB airports (excluding ISGA) increased by +4.7%yoy to 8.6m passengers, extending gains for the 13th consecutive month. On a cumulative basis, the year-to-date passenger traffic for airports in Malaysia grew +6.2%yoy to 95.2m, making up 93.0% of our FY19 passenger traffic growth estimates of 102.5m.

ISGA’s domestic traffic snapped 12 months of decline. For ISGA, international passenger traffic surged +21.8%yoy to reach 1.1m for the same month. Likewise, the domestic traffic also gained during the month but at a slower pace of +3.8%yoy, snapping the 12-month consecutive decline. This brings ISGA’s overall passenger growth for the first 11 months of 2019 to +3.9%yoy after hitting 32.6m passengers. The catalyst for the international sector was the geographical location of ISGA which is nearer to the Istanbul city. Overall, MAHB’s total cumulative passenger traffic (including ISGA) grew by +5.6%yoy to 127.8m for the first 11 months of 2019. In the near future, we expect international traffic to receive further support from the commencement of flights by Malaysia Airlines (MAS) to ISGA beginning in November 2019 until 11 January 2020.

Domestic traffic continued its upward trend. Domestic traffic for airports in Malaysia in November 2019 continued its upward trend, increasing by +6.2%yoy to 4.3m passengers. The bulk of the growth in October 2019 was attributable to the +21.0%yoy jump in domestic traffic at KLIA Main Terminal. We opine that the growth was attributable to the shift in airlines capacity from the international to the domestic sector.

International traffic remains firm. International passenger traffic in November 2019 for Malaysian operations increased by +3.3%yoy to reach 4.4m passengers. Klia2 contributed mostly to the overall growth with a +5.2%yoy increase in international passenger traffic. Recall that on November 2019 that AirAsia X (AAX) entered into a profit sharing agreement (PSA) with AirAsia Berhad (AAB) with regard to the transfer of two slots of the Kuala Lumpur-Singapore (KUL-SIN) route from AAB to AAX. As such, capacity for the KUL-SIN route will be doubled via AAX’s Airbus A330 aircraft with 377 seats compared to AAB’s Airbus A320 aircraft with 180 seats. Henceforth, we can expect contribution from ASEAN sector to be further boosted with such agreements in place.

Earnings estimates. No changes made to our earnings estimates.

Source: MIDF Research - 11 Dec 2019