30 April 2013
The new low-cost carrier terminal in Sepang (klia2) is expected to only start operations in January 2014 – a six-month delay from the current scheduled opening on June 28 – with possible cost overruns of up to RM4.5 billion, say analysts.
CIMB Research believes that the commissioning of the new terminal will be delayed by six months to January 2014 and expects Malaysia Airports Holdings Bhd (MAHB) to make a formal announcement soon.
"As at the first quarter of this year (Q1), MAHB had already incurred RM3.2 billion in cost for klia2. We think a delay seems quite probable given that MAHB will still need to run tests on the airport and the airlines will also require sufficient preparation time to move into the new terminal," it said in a report last Friday.
The delay will likely result in cost overruns and CIMB has factored in an extra RM500 million to a total construction costs of RM4.5 billion from RM4 billion, but it does not foresee any problems in raising cash to fund the project due to MAHB’s strong financial standing.
"Although the agreements with the contractors technically protect MAHB from cost escalation, we think MAHB will still likely have to bear part or most of the cost overruns," the research firm added.
CIMB also noted that MAHB will lose out in additional rental revenues if there is a delay because klia2 has nearly four to five times more rental space compared with the current LCCT. It will also be slow to benefit from the increased number of Eraman stores at klia2.
"Although the delay to klia2 will likely result in lower operating expenditure, the cash savings will not be able to offset the loss in cash income."
CIMB maintained its "outperform" call on MAHB at RM6, with a lower target price of RM6.50 from RM6.60 previously.
Alliance Research also believes that a delay in the opening of of klia2 is "inevitable", predicting the commencement of the terminal in January 2014 with total construction costs rising to RM4.4 billion.
"Even though the terminal may be completed in two months, we foresee that the group may take months to conclude the rigorous test run and review the operational readiness of the new terminal and its ground handling capabilities.
"We expect the delay to result in lower aeronautical income and rental revenues for MAHB. On a positive note, the reduced revenue will be offset by the lower depreciation and operating expenses of klia2," it said in a report yesterday.
Alliance reiterated its "neutral" rating on the stock, with a revised target price of RM5.90 from RM6.
During its Q1 results briefing last week, MAHB chose not to commit on whether klia2 will open as scheduled on June 28 and whether costs will exceed RM4 billion.