RHB expects MAHB's earnings to rise as much as 67%, upgrades stock to 'buy'

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KUALA LUMPUR (Sept 20): RHB Research Institute Sdn Bhd expects a 48% to 67% increase in Malaysia Airports Holdings Bhd (MAHB)'s 2017 and 2018 forecast earnings. It upgraded the stock to "buy" with a higher target price (TP) of RM7.60.

"Despite continuing weakness in Turkey, we believe a passenger service charge (PSC) hike in Malaysia will act as a major re-rating catalyst for the stock. Our discounted cash flow (DCF)-based TP rises to RM7.60 after factoring in a PSC hike.

"Our TP implies 2017 enterprise value divided by earnings before interest, tax, depreciation and amortisation (EV/EBITDA) (adjusted) of 13.8 times, 11% below the peer average," it said in a note to clients today.

"The Malaysian Aviation Commission (MAVCOM) is likely to finalise the PSC structure by end-2016. We believe enabling MAHB to earn an adequate return for its investment in klia2, standardising the domestic PSC and normalising the international PSC to be in line with regional airports are key arguments supporting a PSC hike.

"Despite an increase, the international PSC at klia2 will remain below that of KLIA," it said.

RHB expects klia2's PSC to be brought in line with all other Malaysian airports over two years through RM1.50 per person increases each in 2017 and 2018.

"For international PSC at klia2, we estimate RM10/pax increases each in 2017–2018. Despite the increase, international PSC at klia2 will be RM13/pax below the international PSC at KLIA and RM20/pax below the average for Asean airports," it said.

On top of klia2's PSC hike and lower traffic estimate at Istanbul's Sabiha Gokcen International Airport (SGIA) in Turkey, it adjusted earnings to reflect the euro to ringgit estimates and the extension of a RM180 million contract for facility management services at Hamad International Airport at Doha.

"Key downside risks to earnings are lesser-than-estimated increases in PSC for klia2, lower-than-estimated passenger traffic for SGIA in Turkey and appreciation of the ringgit against the euro," it said.

At 3.20pm, MAHB's share price was up four sen or 0.62% at RM6.54 with 1.4 million shares changing hands, for a market capitalisation of RM10.9 billion.