4 June 2013
The opening of the new low cost carrier terminal klia2 in Sepang may be delayed for more than six months until the first quarter of 2014 (Q1 2014), despite completion of the terminal building which is expected within two months, said Alliance Research.
The research house said in a report yesterday that klia2 may only commence operations by end of Q1 2014 due to the additional time required post completion of the terminal for rigorous test runs and review of operational readiness which could take three months and six months of preparation time for Air Asia to move into the new terminal.
"According to management, although klia2 is about 90% completed, it is still behind its original schedule. The slow progress in construction works at the main terminal had resulted in the delay in the opening of klia2.
"We understand that the UEMC-Bina Puri joint venture is the turnkey contractor for the klia2 project for two packages – main terminal building and satellite building, sky bridge and piers. The contract was awarded back in June 2010," it said.
According to Malaysia Airports Holdings Bhd (MAHB) management, 38 packages have been awarded for the construction of klia2.
Due to the delay, MAHB will impose liquidated ascertained damages (LAD) on the defaulting contractor(s) which will be calculated in accordance with prescribed formula but the amount of the LADs has not been finalised yet, pending further discussion with affected contractors.
MAHB also said that it is seeking green light from the federal government to extend the tenure of its concession from 25 years (starting 2009) to 60 years.
The extension of the existing concession tenure would allow MAHB to amortise the cost of klia2 over a longer period, thereby boosting near term reported earnings.
"Assuming an extension of up to another 60 years, our back-of-the-envelope calculation suggests that MAHB’s FY14 earnings could increase by about 28%. We believe that should the federal government grant its approval for the extension of the existing concession tenure, MAHB will enter into the next re-rating phase," said Alliance.
It added that the airport operator’s FY14 earnings would be significantly affected by higher depreciation and amortisation charges upon the completion of klia2 if there are no changes to the remaining tenure of the existing concession agreement.
Alliance maintained its neutral rating for MAHB with an unchanged target price of RM5.90, based on DCF valuation.
"While we are positive on the long-term fundamentals of MAHB, we believe that these have largely been priced in given its rich valuation. Key investment risks include lower passenger movement; outbreak of pandemics and natural disasters; and further delay in the opening of klia2 and cost overruns," it said.
Delay In Completing klia2 May Take More Than Six Months, Says Alliance Research
The opening of the Kuala Lumpur International Airport2 (klia2) could be delayed by more than six months, says Alliance Research Sdn Bhd.
"Even though the terminal building is expected to be completed within two months, we believe the delay in the opening of klia2 could be more than six months.
"This is due to additional time required post completion of the terminal for example three months rigorous test run and review of operational readiness and six months of preparation time for AirAsia to move into the new terminal.
"As such we believe klia2 may only commence its operations by the end of first quarter 2014," said Alliance Research in a research note.
Malaysia Airport Holdings Bhd (MAHB) had said earlier that it was seeking the approval of the government to extend the tenure of its concession from 25 years to 60 years.
"Without any change to the remaining tenure of the existing concession agreement, MAHB’s financial year 2014 earnings would be significantly affected by higher depreciation and amortisation charges upon the completion of klia2," it said.
However, the extension would allow MAHB to amortise the cost of klia2 over a longer period, thereby boosting near-term reported earnings.
"Assuming an extension of up to another 60 years, our back-of-the envelope calculation suggests that MAHB’s financial year 2014 earnings could increase by about 28 per cent," it said.
Against this backdrop, Alliance reiterated its "neutral" rating on MAHB with an unchanged target price of RM5.90.
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