Positive improvement in airport traffic in July

KOTA KINABALU: Passenger traffic for airports in July marked another positive improvement for Malaysia Airport Holdings Bhd (MAHB), growing by 2.2 per cent year on year (y-o-y) and recording a total of 8.6 million passengers.

Notably, both domestic and international sectors posted record passenger movements for a month, surpassing last year’s December.

Despite this, MIDF Amanah Investment Bank Bhd (MIDF Research) took note of the slowdown in growth which it attributed to the high base effect in the same period last year, due to the Aidilfitri holiday season in July 2017.

“Domestic traffic in July declined marginally by one per cent y-o-y to four million passengers, while the overall domestic numbers continued to trend down. KLIA2 was able to sustain its growth momentum, handling 9.2 per cent y-o-y more domestic passengers,” it said in a statement yesterday.

“Meanwhile, airports in Malaysia continued to attract passengers in the international sector, growing by 5.1 cper cent y-o-y.

“The momentum has been consistent over the past few months, which we opine will help to expand the traffic percentage of high value passengers moving forward.

“Accordingly, we expect the seasonal factors such as China Golden Week and school holidays will continue to lend support to MAHB’s traffic for the rest of the year.”

Regarding MAHB’s operations in Turkey, Kenanga Investment Bank Bhd (Kenanga Research) saw that passenger growth for Istanbul Sabiha Gocken Airport for July 2018 grew 9.9 per cent y-o-y, as international traffic demand remains strong potentially due to tourism growth arising from weaker Turkish lira.

Its passenger traffic for the first seven months of the year continued to grow at an encouraging pace of 12 per cent.

“We are anticipating more news flow in the aviation industry, especially from the Malaysian aviation Commission (Mavcom) on the implementation of the Quality of Service framework in 3Q18 for airports with objectives to achieve higher quality of service for passengers and development of new airports in the region.

“This could pose as downside risks for MAHB’s earnings given that Mavcom has proposed a financial penalty of up to five per cent of aeronautical revenue, which could dent our FY18E core net profit projections by seven per cent for every oen per cent penalty.

“That said, in order to mitigate penalties, MAHB has increased their planned capital expenditure to RM600 million to RM700 million in FY18-19 to upgrade their infrastructure, such as trains, baggage systems and toilets.”

Post review, Kenanga Research maintained MAHB’s FY18-19E earnings as it downgraded the stock to underperform from market perform with an unchanged target price of RM8.60 per share.

MIDF Research also said MAHB’s second hand of FY18 is looking good to hit estimates.