MALAYSIA AIRPORTS HOLDINGS BHD

Target price: RM8;60

MALAYSIA Airports Holdings Bhd’s (MAHB) six-month 2018 passenger level registered growth of 5.2% year-to-date, which Kenanga Research deemed to be in line with its total growth forecast of 8.5%.

The research house expected to see stronger growth numbers, boosted by festive seasons such as the Hari Raya holiday season.

“For June, passengers in Malaysia grew 9.7% year-on-year. Hari Raya was the main driver for the growth in June passenger traffic. That said, two weeks of school holidays, which coincided with Hari Raya, was also one of the factors for the boost in traffic.”

Maybank IB said KLIA’s traffic in June grew 6.7% year-on-year, with international and domestic traffic increase by 7.3% and 4.5% respectively.

“KLIA’s positive traffic growth continued, at 12.5% year-on-year, mainly driven by the festive season as mentioned above. As for KLIA2, it was partly attributable to growth from AirAsia as they increased their capacities through higher plane utilisation as well as the number of planes.”

The research house noted that the anticipated quality of service framework will still be implemented by the Malaysian Aviation Commission (Mavcom) in the third quarter of 2018 for airports (starting with KLIA and KLIA2) with objectives to achieve higher quality of service for passengers.

This could pose as downside risks for MAHB’s earnings given that Mavcom has proposed a financial penalty of up to 5% of aeronautical revenue, which could dent our 2018 core net profit by 7% for every 1% penalty.

“That said, in order to mitigate penalties, MAHB has increased its planned capital expenditure to RM600mil-RM700mil (from typically RM300mil) in 2018 to 2019 to upgrade infrastructure, such as trains, baggage systems and toilets.”

The research house added that its target price was based on price-to-book value of 1.72-times.

“Risks to our call include lower-than-expected passenger growth and any unexpected epidemic or terror attack,” it said.