Airport Services – CIMB

The sky is the limit

Despite the sharp fall in ASEAN currencies, Changi Airport’s traffic rose by 8.2% yoy in Aug2013 (the highest since Apr 2012) to reach a record high of955 flights per day. Travel to and from neighbouring Indonesia and Malaysia registered particularly strong growth.

We maintain our Overweight recommendation on the sector. SATS is our top pick, given its attractive valuation of 16x CY14 P/E and better liquidity. There are no changes to our EPS, recommendations and target prices. The catalysts for the sector are Changi’s stronger-than-expected volume growth and higher dividends.

What Happened

Singapore Changi Airport released its Aug 2013 traffic statistics, which revealed that the flights handled increased by 8.2% yoy to a new record high of 955 flights/day. Passengers handled rose 9.4% yoy to 4.68m. Travel demand in Aug was boosted by the extra long weekend, thanks to the Hari Raya Puasa and National Day public holidays in Singapore. Traffic between Singapore, China and Japan also grew by double-digits.

What We Think

Changi Airport’s better-than-expected passenger movements are encouraging because the ASEAN region was embroiled in foreign currency volatility in the past few months.

Due to capital outflows, the Malaysian ringgit (RM) weakened against the S$ by 0.8% mom in July and a further 2.3% mom in Aug. The Indonesian rupiah (Rp) fell against the S$ by 0.9% mom in July and 5.1% in Aug, and depreciated by a further 6% mom in Sep but has since stabilised, albeit at the lower level of Rp9,000 to the S$ (vs. Rp8,000 in Jun 2013). The RM recovered against the S$ by 0.1% mom in Sep.

Although the weaker regional currencies may impact outbound travel in the near term, the macro outlook for Southeast Asia remains positive. This supports our expected 2014 rebound in outbound travel. We forecast that the average GDP growth in Indonesia, Thailand and Malaysia will rebound from 4.8% in 2013 to 5.2% in 2014 and 5.7% in 2015 (vs. 6.1% in 2012). Furthermore, the strong traffic growth between Singapore, China and Japan appears sustainable, given the improved economic outlook for North Asia.

What You Should Do

Stay invested in SIE and SATS. We expect share price upside in both companies from higher volumes in line maintenance and gateway services, given the positive statistics.

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