Malaysia Airports - Proven 1Q09 earnings supported by MARCS

Price: RM3.60
Target Price: RM4.31
Recommendation: BUY

· MAHB’s 1Q09 net profit of RM91.9m came within our expectations accounting for 22% and 27% of our full year forecast and consensus. The overall performance was strongly supported by the implementation of the Marginal Cost Support (MARCS) with the government. Group revenue was boosted by a commendable 22.5% YoY jump in aeronautical income which accounts for 53% to total airport income while non-aeronautical improved by 11%, mitigated however by a 2% (YoY) drop in passenger movement.

· YoY, net profit was flat, rising 0.4% on lower passenger arrivals and a 72% contraction in non-airport operation. The net profit up marginally by 0.4% due to slower passenger movements particularly in the month of Feb 2009 which saw 9% contraction mainly from international. Non-airport revenue was down 72% due to lower plantation contribution arising from lower yield and selling price (FFB declined from RM737/MT to RM425/MT in FY08 and FY09, respectively). The event management income via F1 event will be recognised in the next quarter this year.

· QoQ, net profit jumped 60% to RM91.9m while its cost was marginalised through MARCS and revenue sharing with the government. The net profit jumped significantly due to the one-off provisioning write-back for the amount of RM50m lease rental payable to the Government. As part of the restructuring plan, the new cost centre -User Fee/Revenue Share of RM60m was expensed out in the quarter. Nevertheless the amount is expected be lower (QoQ) as the RM60m in the 1Q09 accounts is the backdated revenue share from 1st April 2008 to 31 March 2009.

· Going forward, corporate restructuring bodes well to the Group’s earning while the Retail Optimisation Plan (ROP) will help to improve its retails and rental income. The ROP is expected to be in full swing after completion by end 2009. On the new LCCT updates, the management will giving out the tender in the next 2-3 weeks time while reiterating the completion dateline in 3Q2011.


· Maintaining our earnings forecast but revising our target price up to RM4.31 (from RM3.35 previously) after rolling our reference year to FY10 and a higher multiple of 11x versus 9x earlier. We accord a higher multiple on improved earnings visibility post restructuring, successful streamlining of its cost structure and a general improvement in the global economy towards the end of this year.