6 June 2013
Malaysia Airports Holdings Bhd (MAHB) fell 1.13% yesterday on talk of additional cost overruns to the tune of RM400 million for its klia2 project. The stock closed at RM6.12, a 7-sen drop from RM6.19 sen with 1.3 million shares done.
Maybank Investment Bank Research (Maybank IB) said in a report yesterday the project cost of klia2, the new low-cost carrier terminal, could rise to RMR4.3 billion, up from the original estimate of RM3.9 billion.
A newspaper quoted sources as saying that the UEM-Bina Puri joint venture, one of the main contractors for klia2, is expected to claim as much as RM300 million from MAHB for additional work done.
"We revise our base case for klia2 to start operations on April 1, 2014 (versus June 28, 2013 previously), with a higher project cost of RM4.3 billion," Maybank IB said, adding that the additional RM400 million will be funded with debt.
"We think a perpetual bond is the most likely debt structure given the management’s determination to safeguard its AAA rating for its primary bonds and it cannot afford to raise its gearing ratio by a significant margin.
"We have imputed a RM500 million perpetual bond, with a profit rate of 5%, into our earnings forecast," it said.
Maybank IB estimated that the cost overrun impact on MAHB will be limited as a majority of MAHB’s contracts are based on fixed priced project value rather than time-related. "This means that the contractors will have to bear the bulk of the cost overruns," it said, contrary to a report which claimed that MAHB would have to foot the bill for additional work done.
The extra cost estimated between RM300 million and RM400 million relates to the cost of gravel (more than RM100 million) as prices have nearly tripled due to exceptional demand from the Klang Valley MRT project, on-going construction cost (RM20 million to RM30 million a month), and additional works and variation orders.
In its report, Maybank IB upgraded MAHB to "buy" from "hold" while its raising target price to RM7.20 from RM6.60 previously.
The revisions come from the estimated April 1, 2014 start-up date for klia2, with a higher traffic growth rate and the additional 50% investment tax allowance for the new terminal.
"We estimate lower taxes of RM585 million to RM645 million, ranging on project cost of RM3.9 billion-4.3 billion, for the entire lifecycle of klia2. This adds RM0.15/share to our DCF-based target price," it said.
The focus on klia2’s completion date, Maybank IB said, has somewhat overshadowed MAHB’s solid fundamentals. It pointed out that KLIA was the fastest growing airport in the Asia Pacific in the first quarter of 2013 and is likely to remain so for the rest of the year and many airlines that are the highest paying customers are returning to KLIA.
"We believe the uncertainty over the klia2 completion status has weighed down on the share price performance. After this overhang is cleared, we believe the market will start to reward MAHB for its strong fundamentals with a positive re-rating," it said.
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