Airports│Malaysia April 10, 2015 Malaysia Airports Holdings COMPANY NOTE MAHB MK / MAHB.KL Current RM7.00 Market Cap Avg Daily Turnover Free Float Target RM7.45 US$3,184m US$2.25m 38.5% Prev. Target RM7.45 RM11,563m RM8.19m 1,639 m shares Up/Downside 6.4% Conviction| | Notes from the Field Malaysia’s weakness to drag on This is the second in a two-part series on MAHB’s businesses in Malaysia and Turkey. We maintain our Hold call as the outlook for MAHB’s Malaysian business is weak, though Turkey is doing better than expected. We recommend switching to Westports. ———————————————————————————————————————— We maintain our DCF-based target Only Malindo is expected to grow Raymond YAP, CFA T (60) 3 2261 9072 price at RM7.45, discounting cash strongly, but this airline still has a E [email protected] flows to 2069, assuming that the relatively small base of traffic. KLIA concession is extended. There Costs to remain bloated are no forecast changes in this report. Costs are also expected to rise in FY15, Company Visit Expert Opinion Headwinds in Malaysia largely due to a full-year's recognition Channel Check Customer Views In the first part of our report released of KLIA2-related operating, ———————————————————————————————————————— Show Style "View Doc Map" yesterday, we concluded that the depreciation and interest costs. outlook for Istanbul Sabiha Gokcen is MAHB only recognised eight months good and better than originally of KLIA2-related costs in FY14. Contents expected. In this second instalment, Staying lukewarm we delve more deeply into MAHB’s BACKGROUND ................................................................... 5 The outlook for earnings in FY15 is core Malaysian business. THE MALAYSIAN AIRPORT BUSINESS ............................ 5 weak for MAHB, as we are expecting VALUATION AND RECOMMENDATION .......................... 11 MAHB experienced a poor 2014, the overall group core net profit to fall bogged down by (1) a severe from RM194m in FY14 to RM180m in slowdown in passenger traffic, and (2) FY15, a decline of 7.2%. We expect the higher operating and non-cash costs Malaysian core net profit to fall 33% following KLIA2’s commencement in yoy, but this will be partially offset by May 2014. As a result, core net profit the ISG’s return to profitability, with shrank 40% yoy in 2014, and if not for the net effect still down yoy on a a change in its depreciation policy, its group-wide basis. Given that the FY14 core net profit would have weighted average share base is declined even more. expected to rise from 1,431m shares in We think 2015 is unlikely to be a FY14 to 1,602m shares in FY15 as a fabulous year for MAHB’s Malaysian result of the 1-for-5 rights issue operations. Passenger traffic growth completed in late-March 2015, core in Malaysia should remain subpar this EPS is expected to fall 17.6% yoy to year due to (1) MAS’s intention to cut 11.2 sen in FY15. Given the capacity by 10%, (2) AirAsia's plan to uninspiring outlook for the MAHB defer new aircraft deliveries and group, we maintain our Hold rating deploy more aircraft overseas, and (3) on the stock. We recommend AAX's decision to scale down growth. switching to Westports. Price Close Relative to FBMKLCI (RHS) Financial Summary 8.20 110.0 7.70 104.0 Dec-13A Dec-14A Dec-15F Dec-16F Dec-17F 7.20 98.0 Revenue (RMm) 4,099 3,344 3,902 4,262 4,480 6.70 92.0 Operating EBITDA (RMm) 811 846 1,434 1,578 1,756 6.20 86.0 Net Profit (RMm) 389.2 748.6 173.6 167.4 249.0 5.70 80.0 12 10 Core EPS (RM) 0.25 0.13 0.11 0.14 0.22 8 6 Core EPS Growth (13.9%) (46.4%) (18.3%) 23.9% 66.2% 4 2 FD Core P/E (x) 27.87 49.72 60.31 51.82 34.48 Vol m Vol Apr-14 Jul-14 Oct-14 Jan-15 DPS (RM) 0.11 0.05 0.07 0.07 0.08 Dividend Yield 1.59% 0.78% 1.03% 1.00% 1.13% Source: Bloomberg EV/EBITDA (x) 15.50 17.08 10.47 9.09 6.58 52-week share price range P/FCFE (x) NA NA 235.0 8.2 7.8 7.00 Net Gearing 73.7% 57.7% 39.0% 31.3% 22.2% 5.96 8.04 P/BV (x) 1.94 1.37 1.31 1.30 1.06 7.45 ROE 7.17% 3.20% 2.22% 2.52% 3.42% Current Target % Change In Core EPS Estimates 0% 0% 0% CIMB/consensus EPS (x) 0.73 0.47 0.78 SOURCE: CIMB, COMPANY REPORTS IMPORTANT DISCLOSURES, INCLUDING ANY REQUIRED RESEARCH CERTIFICATIONS, ARE PROVIDED AT THE END OF THIS REPORT. Sources: CIMB. COMPANY REPORTS Designed by Eight, Powered by EFA Malaysia Airports Holdings│Malaysia April 10, 2015 PEER COMPARISON Research Coverage Bloomberg Code Market Recommendation Mkt Cap US$m Price Target Price Upside Malaysia Airports Holdings MAHB MK MY HOLD 3,184 7.00 7.45 6.4% Westports Holdings WPRTS MK MY ADD 3,765 4.01 4.53 13.0% Rolling P/BV (x) 12-month Forward Rolling FD P/E (x) 9.00 50.0 8.00 45.0 7.00 40.0 6.00 35.0 30.0 5.00 25.0 4.00 20.0 3.00 15.0 2.00 10.0 1.00 5.0 0.00 0.0 Jan-11 Jan-12 Jan-13 Jan-14 Jan-15 Jan-11 Jan-12 Jan-13 Jan-14 Jan-15 Malaysia Airports Holdings Westports Holdings Malaysia Airports Holdings Westports Holdings Peer Aggregate: P/BV vs ROE Peer Aggregate: 12-mth Fwd FD P/E vs FD EPS Growth 3.50 25.0% 40.0 120% 3.00 21.4% 35.0 95% 30.0 70% 2.50 17.9% 25.0 45% 2.00 14.3% 20.0 20% 1.50 10.7% 15.0 -5% 1.00 7.1% 10.0 -30% 0.50 3.6% 5.0 -55% 0.00 0.0% 0.0 -80% Jan-11 Jan-12 Jan-13 Jan-14 Jan-15 Jan-16 Jan-11 Jan-12 Jan-13 Jan-14 Jan-15 Jan-16 Rolling P/BV (x) (lhs) ROE (See Footnote) (rhs) 12-mth Fwd FD P/E (x) (See Footnote) (lhs) FD EPS Growth (See Footnote) (rhs) Valuation FD P/E (x) (See Footnote) P/BV (x) EV/EBITDA (x) Dec-14 Dec-15 Dec-16 Dec-14 Dec-15 Dec-16 Dec-14 Dec-15 Dec-16 Malaysia Airports Holdings 49.72 60.31 51.82 1.37 1.31 1.30 17.08 10.47 9.09 Westports Holdings 26.16 28.34 26.56 7.75 7.25 6.79 17.95 16.72 16.11 Growth and Returns FD EPS Growth (See Footnote) ROE (See Footnote) Dividend Yield Dec-14 Dec-15 Dec-16 Dec-14 Dec-15 Dec-16 Dec-14 Dec-15 Dec-16 Malaysia Airports Holdings -44.0% -17.6% 16.4% 3.2% 2.2% 2.5% 0.78% 1.03% 1.00% Westports Holdings 24.4% -7.7% 6.7% 31.0% 26.4% 26.4% 2.81% 2.65% 2.82% SOURCE: CIMB, COMPANY REPORTS Calculations are performed using EFA™ Monthly Interpolated Annualisation and Aggregation algorithms to December year ends. NPAT/EPS values for calculations and valuations are based on recurring and normalised values for GAAP and IFRS accounting standard companies respectively. 2 Malaysia Airports Holdings│Malaysia April 10, 2015 BY THE NUMBERS Share price info P/BV vs ROE 12-mth Fwd FD Core P/E vs FD Core EPS Share px perf. (%) 1M 3M 12M 2.50 12.0% 70.0 Growth 20% Relative -1.6 8.1 -7.1 60.0 9% 2.00 9.6% Absolute 1.6 14.9 -7.5 50.0 -3% 1.50 7.2% Major shareholders % held 40.0 -14% 1.00 4.8% 30.0 -26% Khazanah Nasional 36.6 20.0 -37% 0.50 2.4% Employees Provident Fund 13.1 10.0 -49% 0.00 0.0% Permodalan Nasional Berhad 11.8 0.0 -60% Jan-11 Jan-12 Jan-13 Jan-14 Jan-15 Jan-16 Jan-11 Jan-12 Jan-13 Jan-14 Jan-15 Jan-16 Rolling P/BV (x) (lhs) ROE (See Footnote) (rhs) 12-mth Fwd Rolling FD Core P/E (x) (lhs) FD Core EPS Growth (rhs) Profit & Loss MAHB is stuck with two years’ of weak (RMm) Dec-13A Dec-14A Dec-15F Dec-16F Dec-17F core earnings of below RM200m in Total Net Revenues 4,099 3,344 3,902 4,262 4,480 Gross Profit 811 846 1,434 1,578 1,756 FY14 and FY15 as a result of the Operating EBITDA 811 846 1,434 1,578 1,756 expanded cost base as a result of the Depreciation And Amortisation (278) (405) (712) (808) (915) commissioning of KLIA2 on 2 May Operating EBIT 533 441 722 770 841 2014. We do not expect the Financial Income/(Expense) (12) (135) (592) (585) (572) consolidation of ISG’s earnings from Pretax Income/(Loss) from Assoc. (39) (53) 8 8 8 the start of FY15 to make a big Non-Operating Income/(Expense) 0 0 158 158 158 difference until FY17. Profit Before Tax (pre-EI) 483 253 297 351 436 Exceptional Items 68 581 22 0 0 Pre-tax Profit 551 834 318 351 436 Taxation (162) (86) (145) (184) (187) Exceptional Income - post-tax Profit After Tax 389 749 174 167 249 Minority Interests 0 0 0 0 0 Preferred Dividends 0 0 0 0 0 FX Gain/(Loss) - post tax Other Adjustments - post-tax Net Profit 389 749 174 167 249 Recurring Net Profit 324 194 180 223 306 Fully Diluted Recurring Net Profit 324 194 180 223 306 Cash Flow (RMm) Dec-13A Dec-14A Dec-15F Dec-16F Dec-17F EBITDA 811 846 1,434 1,578 1,756 In FY15, disposal of 10% stake in Cash Flow from Invt.