This article first appeared in The Edge Financial Daily on March 14, 2019

Malaysia Airports Holdings Bhd
(March 13, RM7.74)
Maintain buy with an unchanged target price (TP) of RM9.44: The February 2019 passenger traffic for Malaysia Airports Holdings Bhd (MAHB) airports (excluding Istanbul Sabiha Gocken Airport [ISGA]) grew by 5.4% year-on-year (y-o-y) to 8.1 million passengers. In fact, it was the first time that the eight million passenger traffic mark was breached in February. For ISGA, international passenger traffic grew by 19.5% y-o-y for the same month, the largest y-o-y growth in 13 months while domestic passengers declined by 2.7% y-o-y . This brings ISGA’s overall passenger growth in February to 4.4% y-o-y after hitting 2.5 million passengers. As such, MAHB’s total passenger traffic (including ISGA) grew by 5.1% y-o-y in February, marking its ninth consecutive month of y-o-y growth.

Domestic traffic for Malaysia in February increased by 8.9% y-o-y to 3.9 million passengers, extending the y-o-y growth to its fourth straight month. This was in contrast to the 0.8% y-o-y drop in February 2018. The bulk of the growth was attributable to the 9.5% y-o-y jump in domestic traffic at airports ex-Kuala Lumpur International Airport (KLIA). We attribute the growth to the Chinese New Year (CNY) celebrations combined with the school holidays.

International passenger traffic in Malaysia jumped by 2.3% y-o-y to reach 4.2 million passengers. It was also notable that the ratio of international to domestic passengers stood at 51:49 which bodes well for MAHB as the passenger service charge for international passengers is higher compared to domestic passengers. Likewise, the growth for international passengers can be linked to the CNY celebrations which coincided with a spike in the daily number of passengers of nearly 170,000 on Feb 10, 2018, the last day of the CNY holiday week.

Economic crisis in Turkey: the country entered into a recession as its gross domestic product (GDP) contracted sharper than expected with seasonally adjusted 2.4% y-o-y drop in the fourth quarter of calendar year 2018 (4QCY18). Despite an assertion of downward pressure on the Turkish lira, we believe that a weaker lira could attract more international passengers into Turkey, especially via ISG. This will continue to uphold the robust growth in the ISG’s international sector which has been recording double-digit y-o-y growth in the past five months.

While travelling sentiment may be affected in the short term due to the tragedy faced by Ethiopian Airlines, we opine that AirAsia Group Bhd (AAGB) (buy; TP:RM3.40) will continue to support the growth in KLIA with the latest contribution at 54%. AAGB also does not operate any Boeing MAX 8 aircraft and the same is applicable to Malindo Air and Cathay Pacific which are major contributors to KLIA’s main terminal passenger traffic. As such, we reiterate our optimism that MAHB passenger traffic can surpass the 100 million mark in 2019, while maintaining a relatively conservative growth rate of 3.5%. All things considered, we maintain our “buy” call on MAHB with a TP of RM9.44 as it is a proxy to Malaysia’s inbound/outbound travel industry, being the country’s largest airport operator. — MIDF Research, March 12