Saturday August 20, 2011
Into the second year of its catchy “Runway to Success” business strategy, Malaysia Airports Holdings Bhd (MAHB) appears to have gained some ground in strengthening its position, widening its revenue base and expanding abroad.
The main goal of the five-year roadmap is to turn the company into a world-class airport business. It has three main thrusts – traffic growth, service excellence and commercial development.
Analysts say, unlike many government-linked companies, MAHB is not weighed down by legacy issues. Even so, they contend that there’s room for improvement as the potential is enormous.
Since 2003, the airport operator has consistently shown year-on-year improvements in its financial results. For the financial year ended Dec 31, 2008 (FY08), MAHB recorded a net profit of RM305.8mil (down 20%) on revenue of RM1.43bil (up 10%) during the lethal global recession.
In FY10, MAHB posted a net profit of RM294.6mil in net profit and revenue of RM1.81bil. In FY10, MAHB adopted FRS139 for the first time resulting in lower profit before tax, net profit and return on equity. Stripping out the FRS139 effect, its pre-tax profit was 10.4% higher than FY09 while return on equity was 10.27% higher.
As of June 30, 2011 MAHB has a cash and bank balances of RM1.09bil – significantly higher from RM350.4mil on June 30, 2009.
Despite being labelled an “unexciting” stock, MAHB shares have actually outperformed the benchmark FTSE Bursa Malaysia KL Composite Index. In 2010, the counter gained over 50%. Year-to-date, it has gained 20% closing at RM6.45 on Friday.
MAHB also has an attractive dividend policy of 50% payout.
Operationally, MAHB has also been showing steady achievements. Its award winning KLIA was ranked number five in the 25 million to 40 million pax category.
In 2009, the International Air Transport Association (IATA) awarded MAHB the Eagle Award for Best Airport in recognition of its outstanding performance in customer satisfaction, cost efficiency and continuous improvements.
Analysts are generally upbeat about the business blueprint. They say it will see the transformation of Kuala Lumpur International Airport (KLIA) into a next generation hub – including the development of a new Low Cost Carrier Terminal (LCCT) – as offering huge growth potential, while continued expansion overseas is expected to enhance MAHB’s portfolio as a world-class airport operator.
Under the plan, MAHB aims to increase its earnings before interest, taxes, depreciation and amortisation (EBITDA) and return on equity to RM1bil and 10% respectively by 2014.
Managing director Tan Sri Bashir Ahmad Abdul Majid had said that in the best case scenario, EBITDA will grow to RM1.12bil while in a base case scenario, it was estimated to be RM822mil.
This it plans to do by managing more airports overseas, boosting its commercial revenue, increasing passenger traffic at the KLIA and co-developing land.
MAHB has also projected revenue to reach RM3bil by the end of the five-year plan. “If we stretch ourselves to bring in passengers, we can be a RM3bil company in five years,” Bashir had said.
He added that several key initiatives had been identified, of which 93% would be from commercial sources – aeronautical and commercial revenue.
It is also targeting to achieve 60 million passengers by 2014, with focus on strengthening KLIA as the next generation hub, where all routes, airlines and terminals will connect seamlessly.
However, MAHB may hit its passenger target much earlier as at end-2010, MAHB handled 57.8 million passengers. In 2009, it handled about 51.3 million passengers.
MAHB manages and operates 39 airports in Malaysia: five international, 16 domestic and 18 short take-off and landing ports. As at end-December last year, more than 50 international airlines are operating at the KLIA.
According to analysts, MAHB’s performance has so far been more or less in line with its business direction as laid out in the blueprint.
“It has successfully improved its revenue and profit, thanks to higher traffic numbers and the steps taken by the airport operator to improve itself,” an analysts said, adding that it was an opportunity for new LCCT terminal to be the regional LCCT hub where the shift to long-haul routes will contribute to the growth of passenger movements.
A local bank-backed analyst said despite the new revision in its charges, MAHB still offers the best value in the region with competitive aeronautical charges.
“It is not easy for MAHB to increase its aeronautical charges. The operator therefore will need to depend on increasing its revenue through the commercial stream,” says an analyst.
On its commercial development, MAHB will also focus on commercial and retail optimisation and expansion at KLIA’s new terminal and subsequently venture into land development in two to five years.
The airport operator is also interested in developing the huge tract of land next to its airport. Analysts say MAHB would most likely find a partner to develop the huge land around the airport. Some analysts say this is one of the ways for MAHB to increase its non-aeronatical activities, which have been growing in recent years and appears to be a trend in the global airport industry. In FY03, MAHB’s non-areonautical revenue stood at RM486mil which has grown to RM842mil in FY10.
To increase profitability, commercial development will be the most important driver for MAHB in the next few years. MAHB has big plans to raise its non-aeronautical contribution from 52% of total revenue currently to 67% by 2014, or an absolute revenue increase to RM2.1bil from RM860.6mil.
Airport operations comprise airport services and duty free goods. The non-airport operations comprised oil palm cultivation, hotel operations (the Pan Pacific KLIA) as well as project and repair maintenance services.
According to KLIA Aeropolis Master Plan, MAHB has identified 2,730 acres, out of a total 22,156 acres of land in KLIA, for commercial development. MAHB also targets to achieve RM185.5mil in property development revenue by 2014.
The KLIA Aeropolis will transform KLIA into a successful major regional hub for Asia-Pacific by making it a well-balanced, self-sustaining, and multi-functional airport city.
On the international front, it has made significant headway into international ventures involving Hyderabad and Delhi Airports in India and Sabiha Gokcen International Airport in Turkey.
The MAHB-GMR consortium was awarded the concession for Male International Airport, Maldives, in June 2010.
The overseas airports under MAHB’s investment portfolio are Rajiv Gandhi International Airport in Hyderabad, India, where MAHB has 11% stake; Indira Gandhi International Airport in Delhi, India, where MAHB has 10% stake; Sabiha Gokcen International Airport (SGIA) in Istanbul, Turkey, where MAHB has a direct 10% associate stake and Male International Airport in the Republic of Maldives, where MAHB has 23% associate stake through Malaysia Airports (Labuan) Pte. Ltd.
It is also in talks with potential partners to manage more airports overseas going forward. MAHB has also embarked on the development of a new terminal to replace the current LCCT – klia2, which will mark another significant development in the aviation history of Malaysia.
klia2 will be bigger than the existing KLIA. KLIA caters to 25 million (passengers per year) capacity while klia2 will cater for 30 million.
Analysts say klia2 will offer huge growth potential for MAHB when it is ready next year given AirAsia Bhd’s tremendous growth.
Over the last decade, budget travellers have increased by leaps and bounds, representing a sizeable chunk of total travel in the Asia-Pacific region and over 40% in Malaysia, and this is expected to increase as budget carriers open more routes.
Two years ago, the airport operator managed to get the government’s approval for its financial restructuring plan. Under the plan, MAHB will pay the Government RM1.01bil, represented by RM508mil in cash, and the remaining amount shall be set off against capital expenditure projects which include upgrading works at the Low Cost Carrier Terminla (LCCT) and aero-train in KLIA. This restructuring will also establish the framework for the review of aeronautical charges. It unbundled some of MAHB non-core activities like the Sepang International Circuit (SIC) to the Government.
The new operating agreements were signed in February, 2009. In 2003, a new management team was brought in and Bashir was appointed managing director in June.
Source: The Star.