Malaysia Airports posted a MYR20.6m core net loss on higher-thanexpected amortisation charges – deemed as a non-cash item, its actual earnings appear to be higher than expected, which prompts us to raise our FY15F/FY16F EBITDA numbers by 32.3%/31%. Maintain BUY, with a higher DCF-derived MYR8.11 TP (from MYR7.35, 19% upside). Its FY15F EV/EBITDA is at a 30% discount vs AOT’s numbers.

• Hit by unexpected amortisation. Malaysia Airports reported a MYR20.6m core net loss in 1Q15 on an unexpected MYR45.2mquarterly amortisation expense (at group level). It will have to incur this annually come FY15 onwards (until 2030) on the expiry of the Istanbul Sabiha Gokcen (ISG) concession. This amortisation is on an upward revaluation of the concession. Stripping this, Malaysia Airports wouldhave booked a MYR24.6m core net profit (Malaysia: MYR51.2m, ISG: losses of MYR26.7m/EUR6.6m), which is above our forecast. This is because, if we were to annualise Malaysia’s 1Q earnings and expect that ISG will report a slight loss of only MYR3.8m (vs the company’sguidance of breaking even) in FY15, Malaysia Airports could see at leastFY15 earnings hitting MYR201m vs our forecast of MYR162m.
• Key takeaways. Retail sales for Malaysia’s airport operations suffered,given the weaker passenger numbers in 1Q15 (-1.5% YoY), although overall spending per pax has improved by 2.9% YoY. ISG reduced itslosses to EUR6.6m in 1Q15 (1Q14: EUR14.8m loss) from a combination of higher pax (+16.7% YoY) giving lift to its aeronautical and nonaeronautical revenue by 13.6% and 18.3% respectively. Interest savings (-37% YoY) at ISG from the recent loan restructuring (to EURIBOR+2.5% from EURIBOR+5%) also brought down its overall operating costs by +6.1% YoY.
• Forecasts. Given the significant unexpected amortisation costs (MYR181m) that Malaysia Airports will incur annually, this nudges down our FY15F/16F earnings by 83%/50% respectively. Had this not beenthe case, our earnings would have been raised by 46% (FY15) and 77% (FY16). The impact, however, is reflected in our EBITDA numbers, which we have raised by 32.3% (FY15) and 31% (FY16).
• Maintain BUY. While the earnings downgrade has no impact on the DCF numbers, the higher revised EBITDA projections lift our DCF (WACC: 7.6%) derived TP to MYR8.11 (from MYR7.35). Maintain BUY. Its FY15F-17F EV/EBITDA is at a discount of 29-30% vs Airport of Thailand (AOT TB, TAKE PROFIT, TP: THB251.00).