17 December 2013
The possibility of a further delay in the completion of the new low-cost carrier terminal (klia2) in Sepang comes as a major shock to analysts and could dampen Malaysia Airports Holdings Bhd‘s (MAHB) share price in the near term.
Last week, contrary to previous briefings, MAHB said that it was concerned that works at the main terminal building were "slipping" behind schedule.
Additionally, a local business weekly, citing sources, reported that klia2 could miss the completion deadline due to construction issues at the main areas of the airport.
"The market is likely to react negatively on the progress of klia2 as there have been too many uncertainties pertaining to the start date of klia2," Maybank IB Research analyst Mohshin Aziz said his report yesterday.
He said klia2 is the single most important earnings driver for MAHB in 2014 and a delay will put a new financial burden on the airport operator.
MAHB has to service its debt obligations of RM15 million per month, and bear higher staff cost as it has already hired the workforce for klia2 in anticipation of the launch on May 2, 2014.
He estimated the additional staff cost to amount to RM3 million to RM4 million per month.
"Also, traffic growth might be set back, as KLIA is already operating at 20% above its design capacity and landing slots are scarce," Mohsin said, adding that traffic growth could increase by some 10% next year.
He noted that flight delays at KLIA have also spiked. He said that in 2013, 19% of flights were delayed with an average delay time of 40 minutes compared to only 12.5% delays with an average time of just 25 minutes in 2012.
On another note, Mohshin said MAHB’s bid to develop the Cebu Pacific Airport in the Philippines is unlikely to succeed as its offer was the lowest.
"The Philippines Department of Transportation has disclosed the bid offers for the expansion of Cebu Airport. MAHB’s joint bid with Metro Pacific Investment Corp is the lowest, by 66% as compared to the highest bidder. The official winner will be announced on Jan 6, 2014, but we conclude that MAHB’s bid is unlikely to win," he said.
Meanwhile, Mohshin believes that said MAHB will exercise its first rights of refusal and buy GMR Holdings 40% stake in Sabiha Gokcen airport for €220m (RM980 million).
However, he noted that MAHB does not have the money at hand to fund the acquisition while its borrowing abilities were limited given its current gearing ratio of 0.85 times and has a limit of 1.0 times in order to preserve its AAA bond rating.
"The plausible option is to raise new equity; based on the current market price, issuing 9% new equity will provide the required MYR1 billion. MAHB can also opt for a 50:50 debt:equity structure and be below the 1 times gearing level.
Maybank IB Research kept its earnings forecasts on MAHB with a target price of RM8.20 unchanged pending clarification from the management. Its "hold" call, however, was under review.
On a separate note, Alliance Research Sdn Bhd analyst Tan Kee Hoong believed that any potential delay, which we expect to be not longer than six months, will not have a material impact on the cash flow and earnings prospects of the airport operator.
"With construction works currently at the final stages, we expect any potential extension of opening date not to be later than end of financial year 2014 (FY14), from its current planned commencement date of May 2, 2014," said Tan.
Alliance Research maintained a "buy" rating on MAHB as its top pick in the aviation sector with a target price of RM10.46.
Yesterday, MAHB shares fell 10 sen, or 11% to RM8.99 with 1.18 million units changing hands.