17 April 2013
There is an increased probability that the new low-cost carrier terminal in Sepang (klia2) will not be able to start operations with just two more months to go before the targeted June 28 comes, said CIMB Research.
And any delays would result in lower commercial earnings and higher capital expenditure (capex) than the current official guidance of RM4 billion for klia2, it added.
"Even if klia2’s physical structure is completed by mid-2013, we gather that Malaysia Airports Holdings Bhd (MAHB) will need more time to run tests and checks before commissioning the airport. This may require another three to six months," CIMB said in a report yesterday.
CIMB also noted that klia2’s potential customers, that is, the airlines, will require at least a few more months subsequent to completion to prepare to move into klia2.
"AirAsia, for instance, insists on making a complete move overnight, which would require thorough preparation and readiness to prevent operational hiccups.
"As the terminal is still work-in-progress, the airlines have been unable to do comprehensive operational planning and are reluctant to move into the new terminal until it is fully ready," said CIMB.
"Furthermore, as contractors are putting up variation orders to MAHB, there is a risk that the capex cost will rise above the RM4 billion in our model," the research firm added.
CIMB sees the cost rising to between RM4 billion and RM4.5 billion if there are additional delays or variation orders by klia2’s contractors.
"Assuming a six-month delay to the opening of the terminal with capex increasing to RM4.5 billion, our sum of parts (SOP) target price for MAHB would be cut 8% from RM7.37 to RM6.78.
"On the other hand, if MAHB obtains an investment tax allowance (ITA), which we have not factored into our numbers, it may be enough to offset the negative valuation impact from the delayed opening," said CIMB.
MAHB eventually hopes to get at least RM2.8 billion to RM3.15 billion in ITA, being 70% of the klia2 capex, which helps offset the earlier negatives.
"Also, the longer-term story for MAHB is still intact as the airport operator will be the prime beneficiary of the regional airlines’ aggressive expansion as well as the recent entry of Malindo Air," said CIMB.
It is maintaining an "outperform" call on MAHB at RM5.72, with an unchanged target price of RM6.60 which is based on a 10% discount to SOP to recognise the risk of delays to klia2.
As recently as March 28, 2013, MAHB said the target date for the official opening remains at June 28.
"All efforts are being made towards this target date. MAHB is closely monitoring the progress of the work being done by the contractors. Though some of the works by the contractors are behind schedule, efforts are being taken by them to catch up and work towards the target date," it added.