Decent August traffic performance

Malaysia Airports (MAHB) recorded another strong monthly traffic for the month of August with total passenger movements surged by 9.2% YoY to 9.2mn. The decent growth was spurred by strong domestic and international passenger movements, which surged 14.8% and 4.0%, partially due to low base effect. Passenger movements in the ASEAN and non-ASEAN sectors increased by 3.1% and 4.9% respectively. 

Management indicated the strong domestic performance was contributed by Malindo Air and AirAsia. This more than mitigate the impact of technical glitch to KLIA’s Total Airport Management System, which caused flight delays and inconveniences to passengers.

For 8M19, total passenger movements growth expanded to 5.5% from 4.9% a month ago. This was higher than our 2019 growth forecast of 3.0% and management’s target of 4.9%. However, in view of a slowing global economy and the implementation of departure tax, we keep our forecast unchanged. In specific, we expect Sep-19 passenger movements to remain strong due to several long weekends in September, before tapering off in 4Q19.

ISG is expected to turnaround

The trend has repeated where Istanbul Sabiha Gokcen (ISG) achieved higher growth in the international segment that offset contraction in the domestic segment. In August, the airport recorded a 17.5% growth in the international segment and 5.4% contraction in domestic segment. The double-digit growth in the international traffics has lasted for 11th straight months since Oct-18 while the contraction in the domestic movements has extended to 10 months since Nov-18. All in, the strong traffic in the international segment is favourable to the revenue mix and the airport is on track to turnaround this year.

Wait for PSC decisions

From the implementation of departure tax to the recent reduction in PSC for passengers departing to non-Asean countries, we see this turn of events as risks to the new PSC outcome, which will be announced next month, as well as the terms of an operating agreement extension, which will be finalised by end- 19. For this reason, we advise investors to stay on the sideline until the new PSC is announced.

Forecast & Valuation

We maintain our FY19-21 earnings projections for MAHB. Maintain Sell on MAHB with unchanged target price of RM8.47.

Source: TA Research - 11 Sept 2019