20 November 2012
Malaysia Airports Holdings Bhd (MAHB) expects klia2 in Sepang will be profitable in its first year of operations, given the rental revenue secured coupled with the higher retail revenue it will be able to generate, said OSK Research Sdn Bhd analyst Ahmad Maghfur Usman.
He estimates that klia2’s opening will boost the airport operator’s revenue collection from retail, rental and royalties from RM936 million in the current financial year ending Dec 31 2012 (FY12) to RM1.37 billion in FY14.
"(MAHB) management guided that klia2 will be profitable in its first year. The utilisation rate is expected to jump to 50% next year, with (soon-to-be-launched) Malindo Airways expected to bring in at least 1.5 million departing passengers each year once it has 12 aircraft in operation, growing it by an aggressive 15% per year as it expands its Malaysian base further ahead," said Ahmad Maghfur in a report yesterday.
Although higher maintenance and operational costs are likely to be incurred by the new low-cost carrier terminal (LCCT), they are unlikely to be a drag on its overall profitability.
"Any drag in earnings will only come in the form of a higher depreciation expense incurred, which will likely balloon from RM211 million currently to RM456 million in FY13, given that the RM4 billion costs of constructing klia2 will only be able to be depreciated at the remaining life of the concession, which is only 10 years.
"However, we understand that the management is hopeful that the once the government gives a green light for the extension of another 25 years sometime next year, this will positively boost MAHB’s bottom line given the substantially lower depreciation cost incurred once its depreciation life is extended by another 25 years," he added.
Ahmad Maghfur said klia2 is expected to be a game changer and a cash cow for MAHB from FY14 in the absence of major capital expenditure, which may see the airport operator generating free cash flow of at least RM420 million per year.
The new terminal, which is scheduled to be operational by May 1 next year, is capable of handling up to 45 million passengers and is expected to reach 50% capacity by the first year of operations.
"Come FY14, MAHB’s revenue is expected to further expand by 38% from the RM2.15 billion it will register this year.
"A significant portion of the total will be derived from higher rental collected from klia2 as it will offer over four times the retail space at the existing LCCT," said Ahmad Maghfur.
Although operation costs are expected to surge 32%, he expects the incremental flow to MAHB’s earnings before interest, taxes, depreciation and amortisation (EBITDA) to grow by 46% from RM840 million in 2012 to RM1.23 billion in FY14, while its revenue will surge by 38% from RM2.15 billion to RM2.96 billion.
"We are tweaking our numbers which now incorporate higher operation costs for FY13, to be on the conservative side.
"For FY14, we are raising our revenue projection as we are factoring in a passenger service charge (PSC) hike, which is likely to be subsidised by the government, and higher rental income from klia2," he said, adding that his FY14 forecast earnings for MAHB are nudged up by 15%.
"It is uncertain what the quantum of the upcoming PSC hike would be, but based on an inflation pass-through formula, we estimate that any hike is likely to affect at least 15% of international passengers departing from non-low cost terminals and 15% of domestic passengers departing from any terminal," said Ahmad Maghfur.
Ahmad Maghfur also sees MAHB enjoying "great potential" in developing its massive 22,156-acre landbank.
"In the near term, as much as 50 acres may be allocated for a commercial business district, free commercial zone for warehousing and logistics, and possibly a theme park, a factory outlet and Haj pilgrimage terminal are (also) slated for completion sometime end-2013 to mid-2014.
"Within the next five years, the area could also include a golf resort and an auto city," he added.
OSK is maintaining a "buy" call on MAHB at RM5.83, with a fair value of RM8.