Review

• MAHB’s FY16 core profit of RM93.2mn came in within our expectation but above consensus estimates. For this quarter, the board proposed a final single-tier dividend of 6sen/share, bringing YTD dividend to 10sen/share for FY16 or dividend yield of 1.5%.

• MAHB’s FY16 profit rose to RM93.2mn versus FY15’s RM23.3mn on the back of higher revenue (+8%) and lower depreciation and amortization (- 5.5%). The increase in revenue was anchored by higher passenger traffic seen in Malaysia for both international (+8.3%) and domestic (4.6%) segments (see Chart 1 & 2). This has offset the decline in international passenger movement in Turkey (-2.1%). Meanwhile, the decrease in depreciation and amortization was due to extension of operating agreement.

• The increase in revenue was also led by the retail segment where Eraman recorded higher revenue of 13% for FY16 (see Chart 5 & 6). The rise in duty free sales was in line with the growth in passenger traffic and also due to increase in high-end customers. Besides, the company also recorded higher rental and royalty income of 2% and 38% YoY respectively for FY16 (see Chart 5 & 6).

Impact

• We raise our FY17/18 earnings projections by 5.3/5.0% after: 1) incorporating the unaudited FY16 earnings into our forecast; 2) revising passenger growth forecast downward to 7.2% (from 10% previously) for ISG operation in line with management guidance. For Malaysia operation, we maintain our FY17 passenger growth forecast of 4.8% vs management target of 6.5%.

Outlook

• Looking into 2017, management targets 6.5% growth in passenger traffic in Malaysia and 7.2% growth in Turkey. The growth in Malaysia is expected to be driven by the domestic segment (8.2%) and international (4.7%). In Turkey, the growth is expected to come from the international (12.7%) and domestic (4.6%) segments.

• Management introduces its FY17 KPIs where the group’s EBITDA is expected to hit RM1.79bn for 2017. This is slightly lower than FY16 despite higher passenger growth target as maintenance cost is expected to increase this year following the end of defect liability period for KLIA2.

• For Aeropolis, management reiterates that it would adopt an asset-light approach when assessing various development proposals. As such, any initiatives would be in partnership manner to ensure minimal capex from MAHB.

• Recently, MAHB obtained approval from the government on the extension of operating agreement to 2069 (see report dated 6 February 2017). We understand that new terms and conditions (T&Cs), which are currently studied by the negotiation committee, will be replacements for existing T&Cs. We are of the view that the new T&Cs would likely be favourable to MAHB. Our basis is premised on: 1) negotiation committee does not have any airline operators, who may suggest lower PSC in the future; 2) the government may agree to lower the user fee structure and Khazanah may take the opportunity to divest its stake in MAHB further when MAHB share price increases.

Valuation

• We continue to think the new operating agreement means a new lease of life to MAHB, where new terms and conditions will be relatively favourable than the existing one. Maintain Buy on MAHB with higher DCF valuation of RM7.68/share (from RM7.66 previously) based on discount rate of 10.7%.

Source: TA Research - 1 Mar 2017