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Upbeat Expectations For MAHB
By:

By Michael Tee

Malaysia Airport Holdings Berhad (MAHB) can be proud of its achievements thus far, as the Kuala Lumpur International Airport (KLIA) bagged the World’s Best Airport Immigration Service award at the Skytrax 2011 World Airport Awards in Copenhagen recently. The airport also retained its position as one of the top 10 in the world.

Meanwhile, the Penang International Airport operated by MAHB registered the highest growth rate among airports in Malaysia last year, recording a 25% increase in passengers to total 4.1 million passengers in 2010 compared with 3.3 million the previous year. KLIA was the second best performing airport in Malaysia with a 14% hike over the same period, the year before. KLIA’s passenger traffic figures for the same year amounted to 34.1 million passengers, making it the fourth fastest growing airport in the world.

The trend has continued into the first quarter of 2011, with double digit y-o-y growth recorded. In the period January to February 2011, MAHB reported a 12% y-o-y growth in passenger movement to 9.7million in all airports operated by the company. Growth was seen at all airports, particularly international passenger numbers at KLIA (a rise of 16%) and domestic passengers at other airports (increased by 10%). The strong demand for air travel could have been driven by continued intense price war among local and foreign airlines.

Malaysia’s main airports have benefited from strong demand from the Middle Eastern markets. Despite all the political uncertainties plaguing the Middle East region, passenger volume from the region rose 6% y-o-y to 260,000 at KLIA in the period from January to February 2011. Analysts believe passengers in the region could have switched their holiday destination to Malaysia due to the unrest within the region. Passenger traffic from the Middle East accounted for 8% of total passenger numbers at KLIA in FY-2010. Meanwhile, Japan’s earthquake/tsunami has minimal impact as passengers from Japan only contribute to 2% of KLIA passenger numbers.

Despite positive growth in the airports operated by MAHB, passenger movement could slow down in the coming quarters, due to the higher oil prices and its effects on full service, main carriers. However, MAHB’s passenger growth is projected to remain relatively resilient, as the airport should also capture the shift in passenger traffic from full service to low cost flights.

KLIA2 And Its Impact
Due to the strong growth in traffic experienced, the Low Cost Carrier Terminal (LCCT) is now operating at full capacity. MAHB is currently developing a new terminal known as KLIA2 to replace the current LCCT. According to the Managing Director of MAHB, Tan Sri Bashir Ahmad, the KLIA2 terminal building would be ready by April 2012, with the runway ready a few months after that.

Complete with a new, four kilometres long runway, KLIA2 will be able to handle 30 million passengers per year, with potential to expand to 45 million passengers per year. It would also located closer to the main airport (KLIA), as compared with the current LCCT.

Once the KLIA2 is completed, MAHB is expected to rent out some of the commercial space there immediately after the terminal opens, with the entire space expected to be fully rented out over time. Therefore, there is expectation of additional rental income from KLIA2 starting from FY-2012 (instead of FY-2013 as previously anticipated). KLIA2 could lift EBITDA margin to around 60% from the current 40%, once it is fully utilised and all commercial space is rented out.

This would be driven by commercial revenue as the new airport will offer shopping and dining experience, as well as various airport city facilities that will serve and attract passengers and the surrounding community. For instance, the new integrated complex (to be built by WCT under a JV with MAHB) will house a mall and potentially a cinema. The complex will also become a transportation hub for taxis, buses and a possibly a train service. Apart from that, the new terminal is also designed to keep operating costs low.

Overseas Operations
Analysts believe that MAHB, via a consortium (where MAHB has majority stake), has bid for the development and operation of Prince Mohammad Bin Abdul-Aziz International Airport in Medina, Saudi Arabia. If it wins the bid, the airport concession could potentially provide immediate income to MAHB as the existing 3.5 million pax capacity airport is already in operation. The result of its bid is expected to be out by end 2Q-2011. Apart from this, MAHB remains committed to expanding overseas and is currently in talks with several parties to develop and manage airports in their countries.

Valuations
Kenanga Research has maintained an “Outperform” recommendation for MAHB with a RM6.64 target price (TP). The research firm added that the higher operating costs and the gestation period needed for KLIA2 and its losses from associates are main earnings setbacks for the next two years. However, at this juncture, Kenanga Research does not see any earnings implication, as the LCCT’s current capacity is sufficient for the moment.

HWANGDBS Vickers Research (HDBSVR) believes that MAHB remains a defensive aviation play because of its resilient earnings. The research house believes that FY-2012 will be a challenging year for MAHB due to expected under-utilisation of KLIA2, which could affect sentiment in the near-term. It projects FY-2012F earnings to dip 9% y-o-y on higher depreciation and interest charges. However, HDBSVR believes the stock should be valued based on its long-term earnings potential because of its cash-rich airport concession, such as land development and the KLIA2 project. Therefore, they have retained a “Buy” with SOP-derived TP of RM7.60.

* The article is written based on information from various research houses.

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