CIMB Research retains Hold on Malaysia Airports

KUALA LUMPUR: CIMB Equities Research is retaining its Hold call on Malaysia Airports Holdings Bhd (MAHB) as there are not many catalysts to excite investors.

It said on Thursday MAHB’s core net profit of RM13.8mil the first quarter ended March 31, 2015 was just 8% of its full-year forecast, but this was in line, as seasonal strength in the Turkish summer and the Malaysian year-end holidays should see the numbers catch up.

“We maintain Hold as, in the absence of KLIA2 tariff increases, which we do not expect to happen this year, we see few other catalysts to excite investors,” it said.

CIMB Research said its core EPS forecasts were raised 10% to 35% as it lowered its depreciation estimates which look too high, but this has no beneficial impact to its discounted cashflow-based target price, which it lowered on housekeeping matters. 

The target price was reduced from RM7.45 to RM7.40.

To recap, MAHB consolidated its 100% stake in ISG from Jan 1, 2015, whereas ISG was only 20% equity accounted during 1Q14.

“So group revenue rose 12%, with ISG coming in, but offset by the absence of construction revenue that was booked in Malaysia last year,” it said.

CIMB Research said MAHB’s profits from Malaysia were squeezed because the completion of KLIA2, which was much bigger and more expensive that the LCCT, caused operating, depreciation and interest costs to balloon.

“This coincided with a decline in pax traffic as airlines rationalised capacity on weak yields, and the MH370/MH17 accidents caused a drop in international passengers.

“While the Malaysian earnings will trough this year, the recovery will slow since Malaysia’s key airlines are planning either capacity cuts or single-digit capacity growth,” it said. 

CIMB Research said ISG’s 1Q15 core net loss narrowed 46% on-year, on the back of 17% pax traffic growth and it forecasts ISG to report a core net profit of €12.6mil this year, from a loss of €33.3mil last year.

“Still, we expect the MAHB group’s core net profit to be flat this year, and core EPS to decline 9.5% due to the expanded share base,” it added.