AIRPORT’s 1HFY24 results beat expectations but met market expectations. Its 1HFY24 core net profit doubled buoyed by high- yielding international passenger throughput. We raise our FY24- FY25F forecasts by 11% each but maintain our TP of RM11.00 and ACCEPT OFFER call.

AIRPORT privatisation status - pre-conditional offer to final offer. We understand that three out of the four conditions have been fulfilled. Once the fourth condition is satisfied, a final offer is expected to be announced. To recap, a consortium comprising Khazanah, EPF, New York-based GIP, and ADIA is buying out AIRPORT shares not already owned, translating to a 67.01% stake for RM12.3b or RM11.00/share cash. The consortium does not intend to maintain the listing status of AIRPORT. The proposed offer is expected to be completed by 4QCY24.

AIRPORT’s 1HFY24 core net profit beat our forecast at 55% but met market expectations at 50% of the full-year consensus estimate. The variance against our forecast came largely from better-than-expected yields and lower-than-expected operating cost.

YoY, its 1HFY24 revenue rose 21% in tandem with a 16% increase in passenger throughput to 65m (95% of pre-COVID volume) which drove higher aeronautical (+24%) and non-aeronautical (+24%) segments. The better performance from non-aeronautical segment was due to higher retail revenue attributed to an increase in passenger throughput. Its 1HFY24 core net profit doubled buoyed by high-yielding international passenger throughput and lower operating cost.

QoQ, its 2QFY24 revenue rose 2% due to higher aeronautical thanks to higher recognition of MARCS and higher passenger movement in Malaysia and Türkiye. However, its core net profit rose by 8% due to recognition of deferred tax assets.

The key takeaways from its analysts briefing yesterday are as follows:

1. The group reiterated that passenger’s throughput recovery is gaining traction in both Malaysia and Türkiye. Total network of airports’ passenger traffic continued to gain traction in 1HCY24, recording 65m (+16% YoY) which made up 49% of our full-year forecast of 131m (vs. 119m in 2023). As an indication that traffic recovery has continued to show buoyancy, 1HCY24 passenger movements reached 95% of CY19 level, underscoring the underlying demand for air travel. Its Malaysia operation’s total passenger movements for 1HCY24 grew by 16% and reached 87.9% of 1H19 levels, boosted by international passengers recording 23.6m (+16%) which more than offset lower domestic passengers (-1%). Similarly, its Türkiye operation namely Istanbul SGIA’s traffic continued to exhibit positive momentum. Passenger movements for Istanbul SGIA continued to show resilience in 1HCY24, recording 20m passengers reflecting a 16.4% increase over 1HCY23 and a double-digit increase of 18.1% over 1H19. Malaysia Airports welcomed six new airlines (Cambodia Airways, Flydubai, Iraqi Airways, Juneyao Airlines, Thai Lion Air and Turkmenistan Airlines) in 1HCY24, boosting total seat capacity recovery to 85%, with 57m seats compared to 67.3m in the 1H19. Additionally, the average load factor for 1HCY24 exceeded 1H19 by 3.4 percentage points at 78.8% with an increasing growth trend each month during 1HCY24, an indication of a positive demand pull that potentially could boost higher seat capacity offerings.
    
2. The group is optimistic on its prospects going forward driven by passenger traffic growth and further strengthened by the group's on-going strategy in enhancing its airline and hub connectivity, rejuvenating commercial and retail spaces as well as accelerating off-terminal opportunities. It is optimistic of resurgence in passenger numbers and connectivity, expected to be driven by the introduction of new airlines and services at key airports, including Kuala Lumpur International Airport, Penang, Kota Kinabalu and Langkawi Amplifying the positive outlook is latest airlines’ seat capacity for 2024 that shows a 13% increase over 2023, underpinned by the visa-free entry for Chinese and Indian passengers, expected to boost traffic recovery, particularly in the Northeast Asia Region. All in, it expect >90% international recovery in the 1HCY24, with local carriers expected to increase capacity further in 2024 via reinstating remaining grounded fleet and upgrading to 737-8 and 321 NEOs. The pre-qualification for Penang International Airport expansion was completed in Mar 2024 and the actual work is expected to begin in 3QCY24. Upon completion in 2028, the airport will be able to handle 12m passengers per annum. At present, the airport with a capacity of 6.5m passengers per annum handles 8m passengers per annum.
    
3. Subang Airport has undergone a revival in an effort to further boost regional connectivity within Malaysia and Southeast Asia. Starting August, the airport will resume narrow-body aircraft operations with up to five airlines, promising to transform travel options for passengers. Specifically, TransNusa, Scoot, AirAsia and Batik Air Malaysia will commence daily flights there gradually starting from Aug CY24 Subang Airport’s closer proximity to Kuala Lumpur city centre will reduce travel times, benefiting business travellers and tourists. In addition, the reactivated rail link between Subang and Kuala Lumpur will ensure seamless transfers, making it easier for passengers to move between the city and the airport.
    
4. It is positive that the commercial reset in its retail segment is progressing well, with positive impact reflected in higher occupancy and turnover. The group reiterated that Initiatives will continue into 2024 with more outlets to open, bringing in new, refreshed and first-in-airport brands to airports across the network. Completion of the reset is expected to further boost non-aero revenue contribution.

Forecasts. We raise our FY24-25Fnet profit forecasts by 11% each.

Valuations. OurTP is the offer price of RM11.00 and our call is ACCEPT OFFER.

Risks to our call: The consortium fails to secure a 90% stake to make the privatisation mandatory.

Source: Kenanga Research - 2 Sep 2024