Turkey ops weigh on MAHB

Passenger traffic growth supported by recovery from M’sian ops

PETALING JAYA: The deteriorating outlook in Turkey is weighing on Malaysia Airports Holdings Bhd (MAHB) operations due to the slowdown in the tourism sector there, says Affin Hwang Capital Research.

It said in a research note that MAHB’s overall passenger traffic growth was broadly in line with expectations but was mainly supported by recovery from Malaysian operations.

“Ongoing drag from Turkey’s operations could negate any earnings boost from the higher passenger service charges (PSC) effective in 2017. Shares are trading above mean valuation despite multiple earnings disappointments. Maintain Sell,” it said.

Affin Hwang Research said MAHB’s total passenger traffic grew 5.6% year-to-date, mainly driven by strong recovery in Malaysian operations on the resumption of several routes by British Airways, All Nippon Airways etc and the return of Chinese tourists.

Turkey operations (ISG), however, disappointed with a 5.3% passenger growth year-to-date, a stark decline from the high double-digits just one year ago.

It noted that recent terrorist attacks and the failed coup attempt have affected tourist arrivals, and there is little indication of any recovery in the near term. Tourist arrivals have plummeted 30% in January to July of 2016, a worrying sign for ISG to achieve breakeven by 2018.

The research house said the opening of Istanbul New Airport (INA) will allow it to accommodate 90 million passengers in 2018, and up to 150 million passengers when fully commissioned in 2020.

Turkish Airlines has indicated its intention to have its hub at INA, and could move its aircraft away from ISG. Pegasus Airlines, ISG’s biggest customer, is staying put at ISG, but we expect it to shift some transit and code-sharing routes to INA.

“Possible extension to Ataturk Airport’s concessionaire period will likely further intensify competition, a negative for ISG,” it said.

Affin Hwang Research projects revenue compounded annual growth rate (CAGR) of 7% after taking into account the higher blended passenger yield, and net profit CAGR of 151% for FY16-18E, though from a low base, underpinned by 3% increase in passenger traffic.

“We maintain our negative outlook for MAHB, largely to account for the disappointing profitability with poor return on equity generation, rising competition for its Turkey operations and moderating passenger growth.

“We reaffirm our Sell rating with a 12-month discounted cashflow-based target price of RM5.40 (WACC 7.5%). MAHB is currently trading above mean valuation of close to nine times FY16E EV/ EBITDA, which we deem unjustified given deteriorating outlook for ISG. Risk to our call includes a strong rebound in overall passenger traffic,” it said.

Shares of MAHB closed the day unchanged at RM6, giving it a market cap of RM9.95bil.