This article first appeared in The Edge Financial Daily on November 14, 2018
Malaysia Airports Holdings Bhd
(Nov 13, RM8.08)
Maintain buy with an unchanged target price of RM9.88: The October passenger traffic for Malaysia Airports Holdings Bhd’s (MAHB) airports including the Sabiha Gokcen International Airport (ISGA) in Turkey grew by 0.5% year-on-year (y-o-y) to 10.7 million passengers, extending its gain for the fifth consecutive month.
The growth was mainly attributable to ISGA’s steady passenger traffic growth of 5.6% y-o-y, buttressed by its international sector, following Pobeda Airlines’ move to add another route and introduce daily flights to and from St Petersburg, Russia.
The ISGA’s strong passenger numbers helped to mitigate the latent air travel demand in Malaysia.
Domestic traffic for Malaysia in October declined by 1.8% y-o-y to 3.8 million passengers, mainly dragged by an 11% y-o-y drop for Kuala Lumpur International Airport’s (KLIA) main terminal.
For the international sector, passenger traffic in Malaysia also took a breather, decreasing by 0.8% y-o-y.
The restructuring of routes by airlines offering direct international connectivity from other MAHB airports instead of passing through KLIA has seen a 10.1% y-o-y increase in international passengers at these airports. Nonetheless, this was insufficient to outweigh the decline seen at KLIA.
While the departure levy set to be imposed in June 2019 for outgoing international passengers will spur domestic travel, sensitivity towards an increase in passenger service charges for international destinations has always been minimal historically.
We expect travel demand to rebound in the remaining two months of 2018. In November and December, there are four public holidays falling on Tuesdays: Deepavali, Maulidur Rasul, the birthday of the Sultan of Selangor and Christmas. This is likely to encourage Malaysians to extend their leave and travel.
On the looming risks of rising fuel prices, MAHB has minimal exposure to changes in fuel prices, driven by its strong mix of domestic and international passengers that is the strongest in the fourth quarter.
The low sensitivity of air travel towards charges should not affect travel demand. — MIDF Research, Nov 13