Malaysia Airports Holdings Bhd
(Sept 12, RM7.77)
Maintain buy with target price of RM9.38: MAHB’s August pax movement dropped by 5.2% year-on-year (y-o-y), mainly affected by worsening consumer sentiment and fear of aircraft mishap after the disappearance of flight MH370 in March and the shooting down of flight MH17 in July. Domestic travel dropped by 6.4% y-o-y against a decline in international travel by 3.8% y-o-y, partly attributed to capacity adjustment exercises by local airlines (deploying aircraft into international routes from domestic).
Year-to-date pax growth was 7.9% y-o-y, lower than Hong Leong Investment Bank’s forecast gain of 8.8% y-o-y for 2014.
MAHB did not provide a detailed traffic breakdown of the Kuala Lumpur International Airport main terminal building (KLIA-MTB) and klia2 for this round. It only revealed that KLIA-MTB traffic dropped by 16.5% y-o-y (mainly attributed to Malaysian Airline System Bhd [MAS]), while klia2 increased by 7.1% y-o-y in August (sustained AirAsia Group operations and moving Lion Air and Malindo Air to klia2 from KLIA-MTB).
Further exacerbated by the flight MH17 tragedy, China traffic recorded a significant decline of 20% y-o-y. Europe traffic has shown a minor recovery of 4% y-o-y. Uncertainty lies with MAS’ restructuring exercise. MAS is likely to maintain and expand (focus) short-haul regional and domestic routes, while reviewing its long-haul routes and connectivity.
Some risks include: (i) world crises (war, terrorism, political unrest and epidemic outbreak, for example); (ii) development of a high-speed train between Singapore and Kuala Lumpur; and (iii) major movement of airlines from KLIA to klia2.
Despite the near-term negative sentiments, we remain upbeat on MAHB’s long-term growth from increasing demand for air travel. We maintain our “buy” recommendation with unchanged target price of RM9.38 based on sum-of-parts (including a 60% stake in Istanbul-Sabiha Gokcen Airport). — HLIB Research, Sept 12
This article first appeared in The Edge Financial Daily, on September 15, 2014.