Malaysia Airports Holdings Bhd
(March 16, RM6.92)
Maintain buy with an unchanged target price of RM8.60: Malaysia Airports Holdings Bhd (MAHB) has been continuously reporting passenger movement growth of above 5% year-on-year since mid-2016 (Malaysia operations). We expect the positive trend to continue in 2017, driven by growing tourist arrivals and resilient air travel demand by locals as well as capacity expansion by major Malaysia-based airlines.

Under its second five-year strategic plan Runway to Success 2020, MAHB is transforming the surrounding land of Kuala Lumpur International Airport (KLIA)/klia2 into KLIA Aeropolis, leveraging on strong passenger traffic growth from the current 52 million passengers per anum (mppa) to 100mppa by 2030. For the past few years, there have been several developments in areas surrounding KLIA (Nilai, Sepang, Dengkil, Cyberjaya, Putrajaya and Enstek), which will increase the population within the area. Furthermore, the connectivity to KLIA Aeropolis has been continuously improved through road, rail and land. The proposed new highways — Maju Expressway extension, West Coast Expressway and Paroi-Senawang-KLIA-Salak Tinggi Expressway — will all be linked to KLIA Aeropolis.

MAHB’s initial commercial initiatives in joint ventures — klia2 Gateway and Mitsui Outlet Park — started to contribute positively to its bottom line in financial year 2016 (FY16), through lease income, share of profit and concession fees. In mid-FY16, MAHB also entered into outright land lease agreements with several logistic and maintenance, repair and overhaul players, which are expected to contribute positively to MAHB by FY18.

Despite the recent slowdown in Istanbul Sabiha Gokcen International Airport (ISGA) traffic, management remains optimistic about ISGA’s long-term growth. Management is spending €20 million capital expenditure to expand the terminal capacity to 41mppa by 2018 (from the current 33mppa), as current utilisation has already achieved 90%. We are not overly concerned over the recent downturn of ISGA, as ISGA has strong operational cash flow and is self-sustaining, without the need of financial assistance from MAHB.

Risks to our call include a world crisis (war, tourism and an epidemic outbreak), shutdown of KLIA and klia2, and the development of the high-speed rail between Singapore and Pulau Pinang. MAHB is expected to be the major beneficiary of the recovery of air travel demand in Malaysia as well as ongoing land development initiatives (under the KLIA Aeropolis master plan). However, the near-term outlook will be dragged by weak ISGA performance. — HLIB research, March 16