Airport's net profit continued to rise

Background

Malaysia Airport Holdings Bhd ('Airport') operates 39 airports locally and 4 airports internationally, two in India (in Hyderabad and Delhi) and one each in Kazakhstan and Istanbul, Turkey.

Proposed Restructuring of Concession Agreement

Under a 1999 concession agreement, Airport was to have paid concession fees of about RM1.31 billion by early 2004 but fell behind on payments in 2001, just as air travel nose-dived in the wake of the September 11th terrorist attacks in the US. Presently, it still owes about RM840 million in concession fees to the government for the Kuala Lumpur International Airport. Under the proposed restructuring, Airport is seeking its first increase in landing and parking charges in 26 years.

Recent Financial Results

Airport has just announced its results for 1Q2008 ending 31/3/2008. Its net profit increased by 4.4% q-o-q or 28.6% y-o-y to RM91.6 million while turnover increased by 13.9% q-o-q or 23.4% y-o-y to RM409.9 million.

The 23.4% y-o-y increase in turnover was contributed by 15.1% growth in airport operations [i.e. 20.0% increase in non-aeronautical revenue (such as rental & other commercial revenue) & 10.8% increase in aeronautical revenue coming from passenger movements] and 60.5% growth in non-airport operations [mainly due to 176.8% increase in the agricultural segment]. As a result of the increased turnover, Airport's profitability has increased.

Pre-tax profit of RM122.3 million was 30.0% higher than the same quarter last year but 12.7% lower than the preceding quarter, 4Q2007. The drop in pre-tax profit was due to write-back of non-required provision of pension funds of RM34.35 million in 4Q2007. If this write-back is excluded, then Airport's pre-tax profit had actually increased by 15.7% q-o-q.

For more information on Airport's 1Q2008 financial results, see this nice presentation by the company (go here).



Valuation

Airport (closed at RM3.12 as at May 29th) is now trading at a trailing PE of 11.8 times (based on last 4 quarters' EPS totaling 26.5 sen) or at a P/Book of 1.1 times (based on NTA per share of RM2.83 as at 31/3/2008). Based on the steady growth in the topline & bottomline, I believe Airport's trailing PE is undemanding.

Technical Outlook

Airport share price is in a medium-term uptrend line, with support at RM2.70. Strong horizontal supports are at RM3.10, RM3.00 & RM2.85. Overhead resistance is at RM3.25.


Chart 1: Airport's daily chart as at May 29th, 2008 (source: Quickcharts)



Chart 2: Airport's weekly chart as at May 29th, 2008 (source: Quickcharts)

Conclusion

Based on improving financial performance, inexpensive valuation & positive technical outlook, Airport is a good stock for medium-term investment. The resolution of the long-awaited restructuring of concession agreement could be the catalyst for re-rating of this stock.