KUALA LUMPUR (June 3): Affin Hwang Capital has upgraded its rating on Malaysia Airports Holdings Bhd (MAHB) to “Buy”, with a higher target price of RM8.60 from RM8.20 previously. 

In a note today, Affin Hwang Capital said the airport operator's 1Q19 net profit was above street and house expectations, which accounted for 29% of consensus and 32% of its full-year earnings forecasts. 

Following a better-than-expected quarterly earnings announcement last Friday (May 31), the research house raised its 2019-21 earnings forecasts for MAHB by 9%-13%, after incorporating milder increase in operating expenses (for example staff costs, repair and maintenance costs). 

MAHB’s net profit for its first financial quarter ended March 31, 2019 (1QFY19) fell two-thirds lower to RM149.58 million, from RM444.59 million a year ago, due to one-off gains last year in relation to fair valuation of the group's investment in GMR Hyderabad International Airport Ltd (GHIAL), which amounted to RM258.4 million, and a gain on disposal of its investment in GMR Male Private Ltd (GMIAL) of RM28.2 million, as well as higher expenditure. 

Revenue increased to RM1.25 billion, from RM1.215 billion seen previously, MAHB said in the filling with local exchange last Friday. 

Moving forward, Affin Hwang Capital said the second half of this year (2H219) is set to be an eventful period for MAHB, as the group is in discussions with relevant authorities, including the Transport and Finance ministries, on the details of a new operating agreement (OA) and regulated asset base (RAB) framework.

“Management expects the signing of the OA by June/July 2019 and the discussion on the RAB to be completed by end-2019, followed by implementation in 2020,” it said in a note.

“A favourable outcome from these discussions should re-rate MAHB’s share price,” the research house said.

Key risks to its Buy call include weaker-than-expected growth in the number of passengers and negative outcome from discussions on OA and RAB, it added. 

At midday break today, MAHB rose 2.04% or 15 sen to RM7.49, with 203,700 shares traded.