The  Doha  job  win  will  add  MYR6m  annually  in  earnings  for  FY15-20. Maintain  BUY  as  Malaysia  Airport’s  recent  perpetual  sukuk  issue nudges  up  FY15/FY16  “accounting”  earnings  by  24%/11%  but marginally  raises  our  DCF-derived  TP  to MYR8.05  (vs  MYR8.04,  20.9% upside).  While  Nov 2014 traffic dropped, it was not as bad as expected. YTD Nov 2014 traffic growth stands at 5.2% vs our FY target of 4.37%.

Wins  second  job from  Doha  Airport.  Malaysia  Airports’ joint-venture (JV)  company Malaysia Airports Consultancy Services Middle East LLC (MACS  ME)  won  a  letter  of  award  from  the  New  Doha  International Airport  Steering  Committee  to  provide  airport  special  systems  repair  & maintenance services at Hamad International Airport. MACS ME is 51%-owned by  Watad Group Enterprises LLC  (Malaysia Airports:  49%).  The 3-year  MYR192.1m contract comes  with a 2-year  extension option.  This is the group’s  second contract win from  the  airport.  We assume the job fetches  a  20%  net  margin,  which  effectively  translates  in to  MYR6m annual contribution to earnings (on its stake) over the next five years. 

November numbers down. Malaysia Airport’s Nov 2014 traffic  dropped by  2.6% YoY  (YTD:  +5.2%), ie better than management expected.  We expect December traffic to drop by a similar quantum YoY,  with  ending 2014  passenger  traffic  to  grow  at  4.37%  (from  our  earlier  4%).  We expect  FY15  and  FY16  traffic  growth  to  be  unchanged  at 6%  and  5% respectively,  as  the  shaky  consumer  sentiment  on  the  goods  and services tax (GST)  implementation could cap the upside to growth. We also  lower  our  2014  aircraft  traffic  growth  estimate  to  7.2%  YoY  from 12%. Our FY15F/FY16F at 5%/4% growth respectively are unchanged. 

Perpetual sukuk.  Malaysia Airport’s  recently issued MYR1bn perpetual sukuk (yield at 5.75%, AA2 rating, 10-year  non-callable)  will remove the need for fundraising via  bank borrowings, where interest expense will  hit its  income statement.  It  will be treated as an  equity from an accountingperspective and its interest payments will not hit earnings (as deductions will be on statement on changes of equity). We have  adjusted our model accordingly, as we earlier assumed no perpetual sukuk would be raised. 

Maintain  BUY.  Adjustments  on  earnings  for  FY14:  -7%  (due  to  lower aircraft  traffic),  FY15:  +24%  and  FY16:  +11%  (largely  due  to  reduced “accounting”  interest  expense  from  the  perpetual  sukuk  and  Doha  job win). Our DCF-derived TP  (WACC of 8.3%)  only nudges up to MYR8.05(from MYR8.04) as, theoretically, interest expense is unchanged on DCF computation. We maintain our BUY call.

Source: RHB