MALAYSIA AIRPORTS HOLDINGS BHD

Target price: RM8.61

MALAYSIA Airports Holdings Bhd’s (MAHB) February operating data depicts a seasonally strong traffic volume during the Chinese New Year (CNY) period, said TA Securities.

Total passenger movement last month surged 4.7% year-on-year (y-o-y) to 7.7 million passengers, led by the international segment, which grew 10.7%.

Surprisingly, the domestic segment recorded a contraction of 1.3% y-o-y in February, despite the impact from CNY. MAHB’s management attributed this to a reduction in domestic airlines’ seats offered during the season and fewer operational days of 28 in February.

Cumulatively, the first two months of 2018 passenger movement expanded to 3% y-o-y from 1.5% a month ago.

The South-East Asia and the Middle East sectors registered positive growth in passenger movement.

There was a 39.1% increase in Chinese passengers during the CNY period.

As such , TA said it has maintained its 2018 growth assumption of 3% versus the management guidance of 6.3%.

Growth in Istanbul Sabiha Gokcen’s (ISG) passengers remained strong at 15.5% in February. ISG airport recorded a passenger growth of 15.5% y-o-y (-12.0% m-o-m) to 2.4 million passengers in February underpinned by both the international (+15.8% y-o-y) and domestic (+15.4%) segments.

Despite a strong cumulative growth of 20.5% (vs TA’s forecast of 10%) y-o-y for the first two months of 2018, TA does not expect ISG to turn around in 2018.

Nonetheless, TA said MAHB’s earnings prospect is encouraging on the back of increase in capacity by Malaysian airline operators, especially AirAsia, a potential increase in non-aeronautical contribution typically from dutyfree sales and rental income; and development within Aeropolis.

Other supporting factors to 2018 traffic volume from a high base include the opening of 20th Century Fox theme park in Genting Highlands this year which will likely attract “must-see” foreign visitation and a short-term effect from 14th general election, which would temporary boost domestic traffic volume during the election campaign period.

In terms of MAHB’s share price, TA said the counter is trading at an expensive forward price-earnings ratio of 55 times, given its small earnings base and tiny dividend yield.

TA said it maintained a “sell” call on MAHB with unchanged discounted cash flow valuation of RM8.61 per share, based on a discount rate of 10.7%.