This article first appeared in The Edge Financial Daily on August 15, 2019

Malaysia Airports Holdings Bhd
(Aug 14, RM8.33)
Maintain buy with an unchanged target price of RM9.43: July 2019 passenger traffic for Malaysia Airports Holdings Bhd (MAHB) airports (excluding the Istanbul Sabiha Gokcen International Airport [ISGA]) increased by +7.2% year-on-year (y-o-y) to 9.1 million passengers. This is the highest passenger traffic recorded thus far in 2019 and marks the second consecutive month in which traffic was above nine million passengers. Passenger traffic for airports in Malaysia in the first seven months of 2019 (7M19) recorded a 5.1% y-o-y increase to reach 60.3 million, making up 59% of our financial year 2019 passenger traffic growth estimate of 102.5 million.

For ISGA, international passenger traffic soared 17% y-o-y to reach 1.4 million for the same month, offsetting the 8.7% y-o-y decline to two million in domestic passenger traffic. This brings ISGA’s overall passenger growth for 7M19 to 2.9% y-o-y after hitting 20.1 million passengers. The catalyst for the international sector was the addition of existing frequencies, coupled with the introduction of new airlines. Overall, MAHB’s total cumulative passenger traffic (including ISGA) grew by 4.5% y-o-y to 80.4 million for 7M19.

Domestic traffic for airports in Malaysia in July 2019 continued its upward trend, increasing by 12.9% y-o-y to 4.5 million passengers despite the end of the festive season. We noted that the sequential year growth seen in domestic traffic extended to its ninth consecutive month. The bulk of the growth in July 2019 was attributable to a 14.6% y-o-y jump in domestic traffic at airports ex-Kuala Lumpur International Airport. We attribute the growth to a shift in airlines’ capacity from the international sector to the domestic.

International passenger traffic in July 2019 for Malaysian operations increased by 2.3% y-o-y to reach 4.7 million passengers, the highest since December 2018. This increase was partly contributed by the haj movements, new operations of Air Arabia, and additional frequencies and routes of AirAsia, Malaysia Airlines Bhd, Malindo Air, IndiGo, Saudi Arabian and Jeju Air.

The ratio of international to domestic passengers for Malaysian operations for 7M19 remained at 51:49, which bodes well for MAHB as the passenger service charge for international passengers is higher compared with domestic passengers. MAHB targets to bring in 10 new airlines to Malaysia this year, especially to its five main airports. One of the new airlines is Air Arabia, which commenced direct flights between Kuala Lumpur and Sharjah from July 2019. This will maintain the stronger mix of international passengers, which bodes well for MAHB in terms of the higher passenger service charges collected — RM35 for non-Asean and RM73 for beyond Asean. We continue to believe the departure levy will not be a dampener on passenger traffic growth. This is based on our latest findings, which are in addition to our previous analysis highlighted in a report dated April 15, 2019. Therefore, we believe MAHB will be able to maintain its upward trajectory, especially in terms of passenger growth. — MIDF Research, Aug 14