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This article first appeared in The Edge Financial Daily, on April 21, 2016.

 

malaysia-airports_mahb_210416

Malaysia Airports Holdings Bhd
(April 20, RM6.59)
Maintain sell with an unchanged target price (TP) of RM5.50:
In the first quarter of 2016 (1Q16), the passenger traffic handled by Malaysia Airports Holdings Bhd (MAHB) grew by a modest 3.4% year-on-year (y-o-y). 

MAHB_chart_210416

This came in slightly below our expectations of a 6% growth forecast for 2016. The passenger growth was driven by a commendable 19.2% growth in klia2. 

However, the impact was negated by a 10.2% contraction in the Kuala Lumpur International Airport’s (KLIA) traffic. This was mainly due to Malaysia Airlines Bhd’s restructuring exercise, which included various cuts in routes and frequencies as well as the shift of Malindo Airways Sdn Bhd to klia2. Passenger traffic growth from the other airports was relatively flat at 2.1%. 

Meanwhile, aircraft movement contracted by 2.6% y-o-y in 1Q16. This was below our expectations of a 5% growth for 2016. Aircraft movement in KLIA contracted by 1.1% while movement from the other airports fell by a larger 3.7% y-o-y. 

On a more positive note, passenger traffic at MAHB’s 100%-owned Istanbul Sabiha Gocken Airport grew by a commendable 17.7% y-o-y in 1Q16, driven by a 9.6% growth from the domestic sector and 12.1% growth from the international sector. Similarly, aircraft movement grew by 23.9% y-o-y. 

MAHB will be unveiling its five-year business plan by end-April 2016. Pending that, we maintain our earnings forecasts and our 12-month discounted cash flow-based TP of RM5.50 (weighted average cost of capital 6.7%; terminal growth rate 5%). 

We maintain “sell”, as we see limited catalysts. Risks to our recommendation include  a strong rebound in passenger traffic and revisions to KLIA’s passenger sales charges. — Affin Hwang Investment Bank Research, April 20

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