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This article first appeared in The Edge Financial Daily on June 17, 2019

Malaysia Airports Holdings Bhd
(June 14, RM8.17)
Maintain buy with an unchanged target price (TP) of RM8.80:
Some airlines may relocate from new Istanbul airport to Istanbul Sabiha Gokcen International Airport (ISGA). A possible relocation of some airlines operating at Istanbul’s new airport to ISG may happen the end of this year.

This is due to the roughly 40% higher operating costs at the new airport compared to the Ataturk airport, Istanbul’s old airport. The geographical location of ISGA near Istanbul city is another factor attracting airlines to relocate there.

In its financial year 2018 (FY18), ISGA recorded an +8.8% year-on-year (y-o-y) growth in total passengers, the largest annual growth in three years. The 34.1 million passengers recorded an overall annual capacity of around 41 million in FY18 translating into a utilisation rate of 83%.

Currently, ISGA’s second runway is being constructed the Turkish government and is expected to commence operations the first quarter (1Q) of FY20, enabling the airport to handle up to 80 flight movements per hour, doubling its current capacity.

Another catalyst for ISGA’s growth this year would be the completion of the metro transportation facility expected to be completed in 3QFY20.

This will link ISGA to major points of Istanbul which is roughly 45km apart from the airport, increasing connectivity for airport users in that area.

ISGA’s recorded overall passenger growth of +18.7% y-o-y for the first five months of 2019. The catalyst for the international sector is the ongoing route restructuring carriers such as Pegasus Airlines since late 2018 to expand into more international routes.

Overall, Malaysia Airports Holdings Bhd’s (MAHB) total cumulative passenger traffic (including ISGA) grew +3.7% y-o-y to 55.7 million for the first five months in 2019.

Taking into consideration the factors mentioned above, we are confident that passenger growth in ISGA will reach the growth target of 4.3% in FY19 before increasing further after the opening of the second runway in 1QFY20. As such, we are maintaining our earnings estimates for MAHB at this juncture.

As such, we strongly believe that MAHB passengers in Malaysia can surpass the 100 million mark in 2019, while maintaining a relatively conservative growth rate of 3.5% which translates into 102.5 million passengers.

Risks to our call include lower-than-expected returns under the new regulated asset base framework. — MIDF Research, June 14

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