Amidst a lack of re-rating catalysts and risks related to the appreciation ofMYR vs EUR weighing on the growth of ISG, we retain our NEUTRALrating on MAHB with a DCF-derived MYR6.85 TP (4% upside). We do notexpect any PSC increase in the next 1-2 years and think that uninspiringpassenger traffic growth may translate into sluggish profit contributionsfrom its Malaysian operations. A confirmation on the extension of itsMalaysian concession seems to be the consensus view and should be a non-event as it has already been factored in by most analysts.

Malaysia on track for earnings recovery. Malaysia‟s passenger traffic for2016, based on annualising 1Q16 traffic, is below Malaysia Airports‟ (MAHB)guidance and our estimate. However, we estimate that it can achieve 2.1% YoYtraffic growth in Malaysia this year, aided by capacity expansions by AirAsia,Malindo Air and the arrival of new airlines like Shaheen Air and Vietjet Air to Kuala Lumpur International Airport (KLIA). Higher international traffic andincreased passenger service charges (PSC) from the return of Malindo Air‟soperations to KLIA should support modest earnings growth as well.

Confirmation on the extension of Malaysian concession should be a nonevent. The Malaysian Government has an option to renew MAHB‟s concessionto operate airports in Malaysia for an additional 25 years (to 2059). MAHB iscurrently negotiating with the Government to formalise an extension of theconcession agreement to 2069 – which seems to be the consensus view and is already incorporated in our and consensus fair value estimates.

Will soon announce investment plans related to long-term growth. In its„Road to Success 2020‟ (RtS2020) document, MAHB announced plans toexpand KLIA‟s annual passenger capacity by another 20m-25m. Managementstated that it will be able to share more details on MAHB‟s long-term investmentplans after 23 May, which is the launch date for Aeropolis.

Sabiha Gokcen may report profit this year. Istanbul Sabiha Gokcen Airport(ISG) reported a loss of EUR6m (MYR27.1m) in 1Q16. With the first quarterbeing a seasonally weak one, we expect ISG‟s passenger traffic, EBITDA andearnings to improve as the year progresses. We expect ISG to report a profit ofEUR11.6m (MYR53.3m) for 2016.

Potential downside risks from Turkey operations. We have highlighted therisk of continuing appreciation of MYR vs EUR translating into lower earningscontributions from ISG in our previous notes. Every 10% appreciation in MYRvs EUR would lower our EBITDA estimate by 5% and TP by 3%. Annualisedpassenger traffic at ISG is tracking below management‟s guidance, which is lower than our annual estimate of 32.6m passengers. While we expectpassenger traffic to increase in the next two quarters, management is guidingfor a decline in the traffic growth rate as the year progresses.