10% growth in Oct-19

Malaysia Airports’ (MAHB) Malaysian operations recorded a monthly passenger movements’ growth of 10.0% YoY to 8.6mn passengers in Oct-19. This was driven by decent performance in both domestic and international segments, which grew 12.3% and 7.8% YoY respectively. Meanwhile, the rise in international passenger movements were supported by respective 8.0% and 7.5% growth in the ASEAN and non-ASEAN sectors. We attribute the encouraging performance to early Deepavali this year. Note that Deepavali festival was on 7 November last year.

Cumulatively, 10M19 passenger movements expanded further to 6.1% from 5.7% a month ago to 86.4mn movements. This is in line with our 2019 growth forecast of 5.2% and management’s target of 4.9%, considering that the growth could taper off next month in the absence of Deepavali festival. According to announcement, there was a double-digit passenger growth in sectors such as Abu Dhabi, Addis Ababa, Adelaide, Banda Aceh, Bandar Sri Begawan, Busan, Changsha, Da Nang, Denpasar Bali, Hua Hin, Jeddah, Jeju, Kochi, Kolkata, Krabi, Kaohsiung, Lombok, Macau, Madinah, Male, Padang, Palembang. All regions, except North America, registered increases in passenger movements in October 2019.

ISG to turnaround

Istanbul Sabiha Gokcen (ISG) achieved the strongest YTD growth of 7.1% in passenger movements in Oct-19 with the surge in international passenger movements (23.5% YoY) fully offset the in domestic passenger movements (- 2.2%). Note that the double-digit growth in the international segment has lasted for 13th straight months since Oct-18 and this would bode well for profit-turnaround this year

Less than 2 months to RAB implementation…or not at all

There was an escalation in share price volatility over the past few months, when the Ministry of Transport (MoT) announced the reduction of PSC for passengers travelling to non-Asean destinations and also made the surprised statement about an alternative model, besides RAB framework, for future airport operations (see reported dated 1 Nov 2019). We still see a major roadblock to RAB implementation given the conflicting signals from the MoT. Although we are certain that MAVCOM will go ahead with the RAB framework and will announce the new PSC soon, the uncertainty is still lingering for the government to accept the RAB and the final PSC outcomes.

Forecast & Valuation

We maintain our FY19-21 earnings projections for MAHB. However, we downgrade MAHB to Sell (from hold previously) with unchanged target price of RM8.58/share as there is still no deal in sight for future PSC.

Source: TA Research - 12 Nov 2019