Stuck at Low Growth SELL. Last Traded: RM9.00. mn % 15.0% 10.0% 5.0% 0.0% -5.0% -10.0% Jan-15. Jul-16. Jul-17.

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1 C O M P A N Y U P D A T E Wednesday, April 11, 218 FBMKLCI: 1,86.98 Sector: Transportation THIS REPORT IS STRICTLY FOR INTERNAL CIRCULATION ONLY* Malaysia Airports Holdings Berhad TP: RM8.61 (-4.3%) Stuck at Low Growth Last Traded: RM9. SELL Tan Kam Meng, CFA Tel: kmtan@ta.com.my The same trend repeated in March-18 where the strong growth in passenger movement in the international segment was partially offset by decline in the domestic passenger movement, causing Malaysia Airports (MAHB) to stuck with low growth (<5%) for the past five months. MAHB s Mar-18 operating data indicates that the total passenger movement increased by 4.% YoY to 8.6mn passengers in Mar-18, led by 1% growth in the international segment, which offset 3.5% YoY decline in the domestic segment (see Figure 1). The commendable growth in the international segment came mainly from both ASEAN (+1.5% YoY) and non-asean sectors (+13.1% YoY) (see Figure 3). Figure 1 Mar-18 passenger movement expanded 4.% mn Source: MAHB & TA Research International Domestic Growth 15.% 5.%.% -5.% - Cumulatively, 3M18 passenger movement expanded marginally to 3.4% from 3.% a month ago. According to announcement, despite the overall credible average load factor of 75.6% for the domestic sector, there was significant reduction in domestic aircraft movement by some domestic airlines. AirAsia did contribute to increase in seat capacity for the domestic sector but less than adequate to cover the reductions from other airlines. Overall, we consider 1Q18 passenger traffic within expectations and thus maintaining our 218 growth assumption of 3% versus management guidance of 6.3%. Share Information Bloomberg Code MAHB MK Stock Code 514 Listing Main Market Share Cap (mn) Market Cap (RMmn) Par Value wk Hi/Lo (RM) 9.45/ mth Avg Daily Vol (' shrs) Estimated Free Float (%) 56.8 Beta 1.1 Major Shareholders (%) Khazanah EPF - 1. Forecast Revision FY18 FY19 Forecast Revision (%).. Net profit (RMm) Consensus TA's / Consensus (%) Previous Rating Sell (Maintained) Financial Indicators FY18 FY19 Net Gearing (%) 6.9 CFPs (sen) P/CFPS (x) ROE (%) NTA/Share (RM) (4.5) (4.1) Price/NTA (x) nm nm Share Performance (%) Price Change MAHB FBM KLCI 1 mth mth mth mth (12-Mth) Share Price relative to the FBMKLCI Growth in ISG s passenger remained strong at 15.2% in Feb-18 Istanbul Sabiha Gokcen (ISG) airport recorded a passenger growth of 15.2% YoY to 2.7mn passengers in Mar-18. This was underpinned by international and domestic segments where both grew by 15.2% YoY (see Figure 5 & 6). Cumulatively, 3M18 passenger growth moderated to 18.6% from 2.5% in Feb- 18. We maintain our growth projection of 1% for 218. Source: Bloomberg Page 1 of 5

2 Figure 2 ISG s passenger rose 15.5% in Feb % 25% 15% 1% 5% % -5% -1% Source: MAHB & TA Research International Domestic Growth Outlook The key driver for MAHB share price performance in 2H18 hinges largely on the outcome of the new tariff framework and regulations, which will be implemented gradually starting 219. The central focus would be on: 1) what are the qualifying capex and opex to regulated asset base (RAB) calculation; 2) what is the implication on user fee charges (or government s share of revenue); 3) regulatory cycle (3 or 5 years) for each PSC adjustment; 4) Airport Service Quality (ASQ) and its effects on tariff, and 5) the impact of all above on MAHB s capital structure and dividend policy. We are of the opinion that the new framework would drive operating efficiency, thus benefiting MAHB s future earnings. However, a supernormal growth in future earnings is highly unlikely as the group s bottomline would be regulated. Forecast Earnings forecast maintained. Valuation We continue to believe MAHB is trading at an expensive forward PE of 56x, given its small earnings base and tiny dividend yield. Maintain Sell on MAHB with unchanged DCF valuation of RM8.61/share, based on a discount rate of 1.7%. FCFE FCFE valuation Rf 3% Rm 9% Beta 1.28 CAP M 1.7% P V of future F CF E P erpectual S ukuk 1. S hare outstanding (mn share) FCFE/share 8.61 Page 2 of 5

3 Figure 3: Malaysia s Int. passenger grew 1% in Mar-18 Figure 4: Malaysia s Dom. passengers slipped 3.5% in Mar- 18 'mn 6. ASEAN Non-ASEAN YoY growth (RHS) 25.% mn 5. Pass. Movement (LHS) YoY growth (RHS) % % 5.%.% %.% -5.% - Mar-16 May-16 Sep-16 Nov-16 Mar-17 May-17 Sep-17 Nov-17 Mar-18-5.% 2.5 Mar-16 May-16 Sep-16 Nov-16 Mar-17 May-17 Sep-17 Nov-17 Mar-18 - Figure 5: ISG s Int. passenger rose 15.2% in Mar-18 Figure 6: ISG s Dom. passenger rose 15.2% in Mar-18 ' Pass. Movement (LHS) YoY growth (RHS) 1% % -1% - ' 25 Pass. Movement (LHS) YoY growth (RHS) % 1% % -1% Source: MAHB & TA Securities Page 3 of 5

4 Income Statement (RM'mn) Balance Sheet (RM'mn) FYE 31 Dec F 219F 22F FYE 31 Dec F 218F 219F 22F Revenue PPE EBITDA Intangibles 17, , , , ,759.8 Dep & Amor (852.5) (88.8) (921.) (993.8) (119.7) Others 1,86.1 1, , ,33.7 1,351.1 EBIT Non-current Assets 18, , , , ,692.9 Net Financing Cost (689.8) (716.2) (71.3) (64.5) (61.4) Associate & JV EI (28.6) (51.4) Inventories PBT Trade Recb ,81.3 1,145.9 Tax (11.2) (97.4) (49.2) (74.) (143.) Others PAT Cash 1,57 2,461. 4, , ,445.6 Core Net Profit Current Assets 2, ,43.7 6,1.7 6, ,816.6 Core EPS (sen) Total Assets 21, , , , ,59.5 EPS growth (%) > (4.6) 43.9 PE (x) Share Capital 1, , , , ,679.2 GDPS (sen) Share Premium 3, , , , ,455.1 Dividend yield (%) Others 1, , , , ,576.9 Retained Earnings 2, ,32.2 2, ,85.9 3,66.8 Cash Flow (RM'mn) MI.... FYE 31 Dec F 219F 22F Total Equity 8, ,11.4 9, , ,778. PBT Dep & Amor Borrowings 5, ,126. 5,126. 4,126. 4,126. Changes in WC Other 5, , , , ,128.1 Others Non-current Liabilities 1, , , , ,254.2 CFO Borrowings ,.. Capex (43.5) (418.4) (668.4) (418.4) (418.4) T. Payables 1,57 1,81.4 3, ,72.1 3,477.3 Others Current Liabilites 1, , ,31.1 4,72.1 3,477.3 CFI (293.9) (157.7) (373.1) (418.4) (418.4) Total Liabilities 12,59 13, , , ,731.5 Dividend (141.) (215.7) (217.) (167.9) (167.9) Equity raised NTA/share (RM) (5.1) (5.1) (4.5) (4.1) (3.6) Net Borrowing. (3.5). (423.3) (1.) P/NTA (x) nm nm nm nm nm Others (174.3) (777.) (71.3) (64.5) (61.4) EV/EBITDAR (x) CFF (1215.3) (123.2) (917.3) (122) (1769.3) Ratios Net Increase/(Decrease) in Cash (479.2) FYE 31 Dec F 218F 219F 22F FCFE Profitability FCF/share (RM) EBITDA margin (%) Core profit margin (%) Key Assumptions ROE (%) FYE 31 Dec F 219F 22F ROA (%) Total Passenger Growth (mn) Aircraft movement (') Liquidity Eraman Sales/ pax (RM) Current Ratio (x) Rental - KLIA & KLIA 2 (RM'mn) Quick Ratio (x) Leverage Net gearing (x) Net cash Interest Coverage (x) Page 4 of 5

5 (THIS PAGE IS INTENTIONALLY LEFT BLANK) Stock Recommendation Guideline BUY : Total return within the next 12 months exceeds required rate of return by 5%-point. HOLD : Total return within the next 12 months exceeds required rate of return by between -5%-point. SELL : Total return is lower than the required rate of return. Not Rated: The company is not under coverage. The report is for information only. Total Return is defined as expected share price appreciation plus gross dividend over the next 12 months. Gross dividend is excluded from total return if dividend discount model valuation is used to avoid double counting. Required Rate of Return of 7% is defined as the yield for one-year Malaysian government treasury plus assumed equity risk premium. Disclaimer The information in this report has been obtained from sources believed to be reliable. Its accuracy and/ or completeness is not guaranteed and opinions are subject to change without notice. This report is for information only and not to be construed as a solicitation for contracts. We accept no liability for any direct or indirect loss arising from the use of this document. We, our associates, directors, employees may have an interest in the securities and/or companies mentioned herein. As of Wednesday, April 11, 218, the analyst, Tan Kam Meng, who prepared this report, has interest in the following securities covered in this report: (a) nil Kaladher Govindan Head of Research TA SECURITIES HOLDINGS BERHAD (14948-M) A Participating Organisation of Bursa Malaysia Securities Berhad Menara TA One 22 Jalan P. Ramlee 525 Kuala Lumpur Malaysia Tel: Fax: Page 5 of 5