Malaysia Airports. Company Guide

Transcription

1 Version 10 Bloomberg: MAHB MK Reuters: MAHB.KL Refer to important disclosures at the end of this report AllianceDBS Research, Malaysia Equity 27 Nov 2017 HOLD Last Traded Price ( 24 Nov 2017): RM8.24 (KLCI : 1,717.23) Price Target 12-mth : RM8.75 (6% upside) (Prev RM8.40) Shariah complaint: No Analyst Marvin KHOR marvinkhor@alliancedbs.com What s New 3Q17 earnings slightly ahead of expectations International-heavy passenger traffic mix boosted retail spending, PSC collections ISG profitability improved alongside traffic growth as Turkey foreign visitations started to normalise Raise FY17/18/19F profit by 10%/6%/5% for higher duty-free spending, 6.5% target for 2018 Malaysian pax growth; TP adjusted to RM8.75 maintain HOLD Price Relative Forecasts and Valuation FY Dec (RM m) 2016A 2017F 2018F 2019F Revenue 4,173 4,585 4,946 5,259 EBITDA 1,798 1,989 2,222 2,454 Pre-tax Profit Net Profit Net Pft (Pre Ex.) Net Pft Gth (Pre-ex) (%) nm EPS (sen) EPS Pre Ex. (sen) EPS Gth Pre Ex (%) (141) Diluted EPS (sen) Net DPS (sen) BV Per Share (sen) PE (X) PE Pre Ex. (X) P/Cash Flow (X) EV/EBITDA (X) Net Div Yield (%) P/Book Value (X) Net Debt/Equity (X) ROAE (%) Earnings Rev (%): Consensus EPS (sen): Other Broker Recs: B: 11 S: 4 H: 6 Source of all data on this page: Company, AllianceDBS, Bloomberg Finance L.P. Clearer horizon Slightly improved outlook. (MAHB) 9M17 earnings continued its sharp rebound from a low base, as its Turkish operations achieved operating profitability in 3Q. The group also benefited from improved retail and duty-free spending, amid its efforts to improve commercial performance. Given capacity growth plans of local carriers, we now expect Malaysian passenger growth to record a decent clip of 6.5% in FY18 (from 8.5% in FY17), plus expect earnings expansion from further improvements at its Turkish operations. Though we raise our earnings and TP, we find that its prospects remain wellpriced in for now maintain HOLD. Where we differ. More caution on structural changes. Consensus views are diverged on MAHB. We are more cautious than the street on the potential gains from Operating Agreement changes or Aerotropolis contributions, as we think these would be marginal in the near term and/or offset by higher expenses. Potential catalyst. Substantial improvements from Turkey operations. Losses from ISG have been a key drag for the group, which were worsened by the incidents impacting air travel in Improvement in pax count and profitability will help rerate the stock; or a stake disposal at favourable valuations which could bring in a partner to enhance the unit s outlook. Valuation: Our TP of RM8.75 is based on SOP valuation, where we value the Malaysian and Turkish operations using DCF, KLIA land bank at RM7.50 psf, and its stake in Hyderabad airport at book value. The DCF valuation of its Turkish operations makes up c.22% of its SOP valuation. Our TP implies 1.8x FY18F P/BV. Key Risks to Our View: Weaker passenger traffic. If passenger traffic at MAHB s Malaysian or Turkish airports undershoots growth expectations due to weakened travel demand, there is downside risk to our earnings expectations. At A Glance Issued Capital (m shrs) 1,659 Mkt. Cap (RMm/US$m) 13,672 / 3,328 Major Shareholders (%) Khazanah Nasional Bhd 36.7 Employees Provident Fund S 13.2 Amanah Saham Bumiputera 11.9 Free Float (%) m Avg. Daily Val (US$m) 5.9 ICB Industry : Industrials / Industrial Transportation Refer to important disclosures at the end of this report ed: CK / sa:bc, PY, CS

2 WHAT S NEW Profitable Turkey operations, duty-free growth lifted group Strong bottomline upswing continues. (MAHB) posted a 3Q17 profit of RM79.7m, more than six times its low base of RM10.7m in 3Q16 and up 19% q-o-q. This brings 9M17 core earnings to RM208.6m, more than quadrupling 9M16 s RM37.1m, which was slightly ahead of our/street expectations. Malaysian momentum moderating as expected, Turkey figures recovering due to high tourist season. 3Q17 Malaysian passenger growth of 6.5% y-o-y was unsurprising as we are expecting the 12% growth in 1H17 to moderate, given a higher base in 2H16. Growth was led by international pax (+13.4% y-o-y) while domestic pax was flat. On the other hand, the Istanbul Sabiha Gokcen (ISG) airport saw pax growth of 8% y-o-y as visitations and air travel recovered from 2016 s trough. We note that according to Turkey s Minister of Culture and Tourism, its 3Q17 foreign arrivals were 45% higher y-o-y just shy of a full recovery from 3Q16 s 36% decline. 9M17 arrivals were 29% higher y-o-y, though still 12% below the 2015 levels. Boosted by passenger mix and duty-free spending, while Turkey achieved operating profits. Despite the milder pax growth, 3Q17 Malaysian Aeronautical revenue expanded 10% y-o-y, given the higher PSC (passenger service charges) for international pax. Also encouraging was duty-free revenue rising 19% y-o-y to RM211m (23.5% of Malaysian revenue), as strong marketing and the pax mix resulted in improved revenue/pax. These factors, together with higher ISG contribution lifted by a stronger euro vs the ringgit, result in group revenues rising 13% y-o-y to RM1.21bn. This outstripped the 8% rise in aggregated opex (led by a 16% rise in staff costs on adjustment), thus resulting in group EBIT rising 29% y-o-y to RM270.7m (+8% q-o-q). Notably, ISG and the hotel & lounge operator at its Turkish operations were also individually profitable with bottomline numbers of EUR1.8m and EUR2.1m respectively the first breakeven achievement for ISG since Some positivity on retail/non-aero developments. Besides the duty-free/eraman improvements, the group also disclosed that broad sales/pax at KLIA and klia2 were 12% higher in 9M17 a reflection of the pax mix shifting in the favour of higher spending sectors, like China. This may be further supported by the group s recent adoption of Alipay by merchants at KLIA/klia2. MAHB is also looking forward to progress on its JV with Cainiao Smart Logistics, a unit of Alibaba, for e-commerce support infrastructure at the Digital Free Trade Zone (DTFZ). While terms of the JV have not been fully confirmed, MAHB does not expect to incur large amounts of capex in the venture. On its discussion for the Operating Agreement (and terms concerning Benchmark PSC and revision schedules) with government bodies and MAVCOM, the group anticipates an outcome by 2H18. Raise forecasts for more optimism. We raise our FY17/18/19F profit forecast by 10%/6%/5%, mainly for higher duty-free sales assumptions. Additionally, we raise our FY18F Malaysian passenger growth forecast to 6.5%, from 5% before as we think that the momentum may be sustained, especially given the capacity expansion ambitions of local carriers like AirAsia. Looking to the nearer term, we think 4Q17 may see some sequential softening given Turkey s low travel season, which may lead to losses from ISG. Also, while the group is evaluating potential strategic shifts for ISG, our view (as per earlier report) is that a favourable valuation would be required for a stake sale to be accretive. Post earnings adjustments, our SOP-based TP edges up to RM8.75. Given the limited implied upside, we maintain our HOLD recommendation. Page 2

3 Quarterly / Interim Income Statement (RMm) FY Dec 3Q2016 2Q2017 3Q2017 % chg yoy % chg qoq Revenue 1,076 1,100 1, Other Oper. (Exp)/Inc (866) (850) (941) Operating Profit Other Non Opg (Exp)/Inc nm nm Associates & JV Inc (26.0) Net Interest (Exp)/Inc (171) (164) (184) (7.8) (12.6) Exceptional Gain/(Loss) nm nm Pre-tax Profit (1.7) Tax (32.0) (25.8) (11.0) (65.6) (57.2) Minority Interest (0.3) nm (100.0) Net Profit Net profit bef Except EBITDA Margins (%) Opg Profit Margins Net Profit Margins Source of all data: Company, AllianceDBS SOP Valuation Sta ke Va lue (RM m) Pe r sha re (RM) Comme nt Domestic airport operations 100% 9, DCF-valuation; WACC=8.8%; assuming major RM4bn capex every 10 years Istanbul 's Sabiha Gokcen 100% 3, DCF; WACC=10%, RM4.70/EUR International Airport KLIA Aeropolis landbank 100% 2, % discount to RM15 psf transacted price on 6,600 acres Hyderabad s Rajiv Gandhi International Airport 11% Cost of investment Sums-of-Pa rts Va lue 14, Rounded to the nearest 5 sen Page 3

4 CRITICAL DATA POINTS TO WATCH Critical Factors Malaysian passenger traffic growth. As the primary airport operator in Malaysia, MAHB is a proxy to air travel demand. Recovering air travel demand since 2H16 lifted FY16 growth to 6%, after having slowed to 0.6% in FY15 due to the restructuring of the national carrier Malaysia Airlines (MAB), aviation incidents, and weaker economic outlook. The recovery momentum is expected to be maintained, especially for 1H17, and we impute an 8.5% full-year growth for FY17F, ahead of the group s targeted 6.5%. We also assume 6.5% growth for FY18F from continued momentum and airline expansion, before a more conservative 5% pace thereafter. Malaysian airport tax/pax. MAHB s key revenue source is the passenger service charge (PSC), commonly known as airport tax/pax on departures from its airports. This was raised in 2017 by the Malaysian Aviation Commission (MAVCOM) to RM11/pax for domestic departures (from RM6-9), RM50-73/pax for international (from RM32-65), and with a new ASEAN tier introduced at RM35/pax. As the increases were generally above previous benchmark rates for MAHB except the ASEAN tier, we expect the overall impact to be neutral to positive, especially as there is also partial normalisation of rates between the lower klia2 and KLIA main terminals. We also expect minimal negative impact on passenger traffic as it still constitutes a relatively small portion of overall ticket cost. Furthermore, PSCs in Malaysia are relatively lower than other countries in Southeast Asia. ISG traffic growth to reduce. MAHB had in 2014 acquired the remaining 40% stake in Istanbul Sabiha Gokcen (ISG) and from FY15 onwards, the group has fully consolidated ISG s earnings. ISG was a high traffic growth airport, charting 27%/25%/20% growth in 2013/2014/2015. This shrunk to 4.8% growth in FY16 given the domestic issues in Turkey, and a recovery is not expected to be swift. We impute 4%/9%/9% traffic growth in FY17/18/19F in anticipation of persistently mild growth. Our assumptions are flattish over FY20-30F, as traffic reaches its built-for capacity, plus the opening of a new airport in Istanbul (slated for 2018) to replace the current main international Ataturk airport. Flattish ISG airport tax /pax. ISG s average airport tax/pax contracted slightly by 2% in 2016, as passenger mix tilted towards the domestic segment (68% of total, from 66% in FY15) which commands a lower airport tax (EUR3/pax vs international s EUR13.5/pax). This was due to international traffic being affected more by the incidents in Turkey. Going forward, we expect airport tax/pax to stay flattish with a downward bias, as ISG secures its place as a vital domestic LCC airport with key airline customers Pegasus airline and Turkish Airlines. Currency movement of EUR against MYR. ISG s functional currency is the euro, and key operational items like passenger fees are EUR-denominated. We thus forecast its earnings in EUR, and apply an EUR/MYR rate of 4.70 to FY17-19F forecasts. M'sia Pax Growth (%) M'sia airport tax/pax (RM) ISG Pax Growth (%) ISG airport tax/pax (EUR) Forex rate: RM/EUR Source: Company, AllianceDBS Page 4

5 Jan-14 Apr-14 Jul-14 Oct-14 Jan-15 Apr-15 Jul-15 Oct-15 Jan-16 Apr-16 Jul-16 Oct-16 Jan-17 Apr-17 Jul-17 Oct-17 Jan-09 Apr-09 Jul-09 Oct-09 Jan-10 Apr-10 Jul-10 Oct-10 Jan-11 Apr-11 Jul-11 Oct-11 Jan-12 Apr-12 Jul-12 Oct-12 Jan-13 Apr-13 Jul-13 Oct-13 Jan-14 Apr-14 Jul-14 Oct-14 Jan-15 Apr-15 Jul-15 Oct-15 Jan-16 Apr-16 Jul-16 Oct-16 Jan-17 Apr-17 Jul-17 Oct-17 Dec-99 Dec-00 Dec-01 Dec-02 Dec-03 Dec-04 Dec-05 Dec-06 Dec-07 Dec-08 Dec-09 Dec-10 Dec-11 Dec-12 Dec-13 Dec-14 Dec-15 Dec-16 Company Guide Appendix 1: MAHB price correlation with critical factors Graph 1: Share price vs key macroeconomic factors Indexed: Dec99 = MAHB MK (LHS) FBMKLCI (LHS) Malaysia GDP (current, local currency) (RHS) Approval of PSC hike klia2 expansion & scheduled PSC hike Consolidation of ISG losses Source: Company, Bloomberg L.P., AllianceDBS MAHB share price vs M sia pax traffic and tourist arrivals Indexed: Jan09 = 100 MAHB MK (LHS) M'sia pax traffic (RHS) Malaysia tourist arrivals (RHS) Remarks MAHB s share price is unsurprisingly highly correlated with its Malaysian airport passenger traffic (correlation coefficient 0.8), as the latter is the driver of direct aeronautical revenue (like passenger service charges) as well as indirect, non-aeronautical sources like duty-free and retail sales, rental and car park revenue While tourist arrivals can provide uplift to a country s air travel market, over the past years it has only been mildly influential on passenger traffic (correlation coefficient 0.16) and thus to MAHB (<0.1) implying Malaysia remains predominantly an outbound market for now. Source: Company, Bloomberg L.P., AllianceDBS MAHB share price vs ISG pax traffic and Turkey unit earnings Indexed: Jan14 = 100 MAHB MK ISG pax traffic ISG + LGM EBITDA (RHS) ISG +LGM Net profit (RHS) EUR Remarks MAHB s share price is not yet directly moved by ISG passenger traffic development as the combined Turkey operations (including lounge and hotel operator LGM) has yet to achieve sustained profitability. However, expectations of positive earnings or a steady turnaround can be positive for the share price. Source: Company, Bloomberg L.P., AllianceDBS Page 5

6 Balance Sheet: Net gearing to gradually ease. The completion of klia2 and full acquisition of ISG heralded the end of a huge capex cycle for MAHB. In the forecasts years, we expect MAHB to incur steady capex of RM350m p.a., backed by rising operating cash flow. We also project MAHB s net gearing to slide to 0.4x/0.3x in FY17/18F, after having eased to 0.46x from 0.52x in FY16. Share Price Drivers: Passenger traffic outlook. Passenger traffic is a key driver of earnings and cash flow, as it directly affects MAHB s aeronautical revenue (i.e. PSC collection), and indirectly affects the group s non-aeronautical revenue (i.e. higher passenger traffic should lead to higher Eraman retail sales and variable rents). Our expectation is for passenger traffic growth in Malaysia to remain strong with 7.5% growth in FY17F, and any data that points to more upside may help re-rate the stock. Favourable revisions in Operating Agreement. MAHB is in discussions with the government to adjust the terms of the Operating Agreement. If changes that are positive for MAHB are made, such as the continuation of the Marginal Cost Support Sum (MARCS), or larger capex support is confirmed, MAHB may see financial benefits and a potential re-rating. Key Risks: Weakness in Malaysian/Turkish passenger traffic. Malaysian passenger traffic is reliant on air travel demand, which may be impacted by a myriad of external factors including aviation incidents, currency movements, international relations, etc. An externality may hurt passenger traffic and thus MAHB s profits. MAHB is also exposed to potential declines in air travel demand in Turkey as the ISG caters for both domestic and international flights. Perceptions of instability in the region may be a dampening factor, especially on tourist demand. Company Background MAHB provides management, maintenance, and operational services to all Malaysian airports (except Senai Airport). It also operates duty-free and non-duty-free retail stores, as well as food and beverage outlets at the airports. The group also operates the Istanbul Sabiha Gokcen (ISG) airport in Turkey and its hotel & lounge operator, LGM Airport Operations Trade and Tourism Inc (LGM). Leverage & Asset Turnover (x) Capital Expenditure ROE (%) PB Band (x) Source: Company, AllianceDBS Page 6

7 Key Assumptions FY Dec 2015A 2016A 2017F 2018F 2019F M'sia Pax Growth (%) M'sia airport tax/pax (RM) ISG Pax Growth (%) ISG airport tax/pax (EUR) Forex rate: RM/EUR Segmental Breakdown FY Dec 2015A 2016A 2017F 2018F 2019F Revenues (RMm) M'sia - Airport services 2,039 2,224 2,365 2,526 2,629 M'sia - Retail ,017 M'sia - Others M'sia - Hotel Others ,116 1,231 1,363 Total 3,870 4,173 4,585 4,946 5,259 EBIT (RMm) M'sia - Airport services M'sia - Retail (72.5) M'sia - Others M'sia - Hotel Others Total ,067 1,277 1,486 EBIT Margins (%) M'sia - Airport services M'sia - Retail (10.8) M'sia - Others M'sia - Hotel Others Total Income Statement (RMm) FY Dec 2015A 2016A 2017F 2018F 2019F Revenue 3,870 4,173 4,585 4,946 5,259 Other Opng (Exp)/Inc (3,211) (3,296) (3,517) (3,669) (3,773) Operating Profit ,067 1,277 1,486 Other Non Opg (Exp)/Inc Associates & JV Inc Net Interest (Exp)/Inc (683) (690) (686) (681) (667) Exceptional Gain/(Loss) 1.52 (75.7) (57.5) (57.5) (57.5) Pre-tax Profit Tax (5.8) (110) (57.2) (144) (184) Minority Interest 0.79 (2.8) Preference Dividend Net Profit Net Profit before Except. (75.6) EBITDA 1,629 1,798 1,989 2,222 2,454 Growth Revenue Gth (%) EBITDA Gth (%) Opg Profit Gth (%) Net Profit Gth (Pre-ex) (%) nm nm Margins & Ratio Opg Profit Margin (%) Net Profit Margin (%) ROAE (%) ROA (%) ROCE (%) Div Payout Ratio (%) Net Interest Cover (x) Source: Company, AllianceDBS Page 7

8 Quarterly / Interim Income Statement (RMm) FY Dec 3Q2016 4Q2016 1Q2017 2Q2017 3Q2017 Revenue 1,076 1,080 1,094 1,100 1,212 Other Oper. (Exp)/Inc (866) (783) (824) (850) (941) Operating Profit Other Non Opg (Exp)/Inc Associates & JV Inc Net Interest (Exp)/Inc (171) (195) (174) (164) (184) Exceptional Gain/(Loss) 0.0 (76.7) Pre-tax Profit Tax (32.0) (47.5) (36.9) (25.8) (11.0) Minority Interest (0.3) (3.8) (1.0) Net Profit Net profit bef Except (5.3) EBITDA Growth Revenue Gth (%) EBITDA Gth (%) 11.5 (4.3) 11.3 (6.2) 10.5 Opg Profit Gth (%) (9.2) (7.2) 8.2 Net Profit Gth (Pre-ex) (%) 13.8 (150.0) (1,262.1) Margins Opg Profit Margins (%) Net Profit Margins (%) Balance Sheet (RMm) FY Dec 2015A 2016A 2017F 2018F 2019F Net Fixed Assets Invts in Associates & JVs Other LT Assets 18,945 18,198 17,667 17,126 16,577 Cash & ST Invts 1,287 1,572 1,783 2,320 2,934 Inventory Debtors 1, ,130 1,220 1,297 Other Current Assets Total Assets 21,992 21,289 21,337 21,507 21,718 ST Debt Creditor 1,784 1,539 1,555 1,660 1,671 Other Current Liab LT Debt 5,500 5,386 5,386 5,386 5,386 Other LT Liabilities 5,428 5,440 5,375 5,233 5,075 Shareholder s Equity 8,841 8,695 8,791 8,999 9,357 Minority Interests (0.8) Total Cap. & Liab. 21,992 21,289 21,337 21,507 21,718 Non-Cash Wkg. Capital (535) (554) (294) (304) (233) Net Cash/(Debt) (4,612) (4,008) (3,797) (3,260) (2,646) Debtors Turn (avg days) Creditors Turn (avg days) (966.9) (714.1) (662.8) (670.8) (677.3) Inventory Turn (avg days) (55.1) (54.3) (61.6) (65.0) (65.6) Asset Turnover (x) Current Ratio (x) Quick Ratio (x) Net Debt/Equity (X) Net Debt/Equity ex MI (X) Capex to Debt (%) Z-Score (X) Source: Company, AllianceDBS Page 8

9 Cash Flow Statement (RMm) FY Dec 2015A 2016A 2017F 2018F 2019F Pre-Tax Profit Dep. & Amort Tax Paid (142) (77.2) (57.2) (144) (184) Assoc. & JV Inc/(loss) (10.4) (15.7) (12.5) (12.7) (13.0) Chg in Wkg.Cap. (83.0) 27.0 (260) 9.56 (71.0) Other Operating CF (34.0) Net Operating CF 678 1,771 1,538 1,875 1,970 Capital Exp.(net) (78.1) (431) (400) (400) (400) Other Invts.(net) (1,183) Invts in Assoc. & JV (3.0) Div from Assoc & JV Other Investing CF Net Investing CF (1,216) (294) (400) (400) (400) Div Paid (94.6) (141) (183) (199) (232) Chg in Gross Debt (790) (345) Capital Issues 1, Other Financing CF (747) (729) (744) (739) (724) Net Financing CF (315) (1,215) (926) (938) (957) Currency Adjustments Chg in Cash (754) Opg CFPS (sen) Free CFPS (sen) Source: Company, AllianceDBS Target Price & Ratings History Source: AllianceDBS Analyst: Marvin KHOR Page 9

10 DISCLOSURE Stock rating definitions STRONG BUY - > 20% total return over the next 3 months, with identifiable share price catalysts within this time frame BUY - > 15% total return over the next 12 months for small caps, >10% for large caps HOLD - -10% to +15% total return over the next 12 months for small caps, -10% to +10% for large caps FULLY VALUED - negative total return > -10% over the next 12 months SELL - negative total return of > -20% over the next 3 months, with identifiable catalysts within this time frame Commonly used abbreviations Adex = advertising expenditure EPS = earnings per share PBT = profit before tax bn = billion EV = enterprise value P/B = price / book ratio BV = book value FCF = free cash flow P/E = price / earnings ratio CF = cash flow FV = fair value PEG = P/E ratio to growth ratio CAGR = compounded annual growth rate FY = financial year q-o-q = quarter-on-quarter Capex = capital expenditure m = million RM = Ringgit CY = calendar year M-o-m = month-on-month ROA = return on assets Div yld = dividend yield NAV = net assets value ROE = return on equity DCF = discounted cash flow NM = not meaningful TP = target price DDM = dividend discount model NTA = net tangible assets trn = trillion DPS = dividend per share NR = not rated WACC = weighted average cost of capital EBIT = earnings before interest & tax p.a. = per annum y-o-y = year-on-year EBITDA = EBIT before depreciation and amortisation PAT = profit after tax YTD = year-to-date Page 10

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