Review

• Malaysia Airports’ (MAHB) 1H24 core profit of RM400.2mn came in within expectations.

• MAHB reported profit six quarters in a row now. 2Q24 core profit soared 69.4% YoY to RM209.4mn underpinned by 11.9% growth in revenue. This decent performance can be attributed to 1) proliferation of foreign tourists in Malaysia owing to tourist-friendly policies, 2) increase in airline capacity, 3) stable performance of ISG operations despite cost pressure, and 4) significant recovery in retail revenue and rentals amid rising passenger movements. For this quarter, the group’s aeronautical (Figure 1) and non-Aeronautical revenue increased by 8.9% and 17.7% YoY respectively.

• In terms of operating cost, the increase in total cost of 7.6% was manageable. Importantly, the significant rise in operating cost in ISG operations, e.g., staff (+113.2%) and maintenance (+97.7), was mitigated by favourable movements in Euro against Turkish Lira. Note that close to 80% of ISG’s revenue are denominated in Euro whereas these costs are in Lira.

• QoQ, 2Q24 core profit expanded by 9.7% alongside 7.3% increase in total passenger movements. The increase in passenger traffic in Malaysia (+6.4% QoQ) can also be attributed to increased airline capacity and returns of foreign airlines or new airlines to KLIA.

Impact

• No change to our FY24-26 core earnings projections. However, we factor in the reduction in user fee (exceptional items), which would result in increase in FY24-29 net profit. Briefing highlights

• The process in fulfilling the pre-conditions is on-going and we understand the last pre-condition is left with the approval from MAVCOM. Once it is obtained, the regulation would require the offeror to send the notice and offer documents to the board of directors, which will be extended to shareholders.

• Penang airport expansion is underway after the company and governments agreed on the recovery mechanism. The development cost would be part financed via a total of RM700mn user fee reduction over the next six years.

• Management reiterates that Subang operations will not cannibalise KLIA. There will be 5 airlines (Batik Air, AirAsia, Firefly, Scoot and TransNusa) serving destinations from Subang to Penang, Kuching, Kota Kinabalu and Singapore.

Valuation

• While the general offer is still ongoing, we keep our target price of RM11.00/share unchanged and advise the shareholders to accept the offer.

Source: TA Research - 2 Sept 2024