26 April 2013
There is a possibility that the completion of the Kuala Lumpur International Airport 2 (klia2) will see delays despite management maintaining that construction was on track.
In his report on Malaysia Airport Holdings Bhd (MAHB) yesterday, RHB Research Institute Sdn Bhd (RHB Research) analyst Ahmad Maghfur Usman highlighted this possibility noting that the key question was ‘for how long’ and whether there would be any cost overruns.
Compared against a scenario with the klia2 being operational on the first day of the financial year 2013 (FY13), the analyst estimated the delay to reduce RHB Research’s revenue forecasts by four per cent in FY13 and FY14, due to lower rental and passenger spend.
“However, this will be offset by lower operational costs and hence, the downward revision in earnings before interest, tax, depreciation and amortisation (EBITDA) is only by one per cent in FY13 but by as much as nine per cent for FY14 and six per cent in FY15 onwards as we had assumed that more improved earnings would kick in a year earlier,” he outlined in his report.
“Nevertheless, the delayed completion of klia2 will be positive to MAHB’s bottom line as the higher depreciation from klia2 will not hit FY13 earnings.”
Meanwhile, Ahmad Maghfur noted that the apron at the domestic pier was completed on one side while the concrete would need to be laid on the other side first before any work can be done.
“Management maintains that construction is on track for opening by June 28, 2013 but in our view, this stance may possibly change,” he added.
“Based on the latest reports dated April 19, the progress on klia2 is on track, with about 87 per cent of the works done.
“MAHB has also engaged a new contractor to complete the runaway as the previous contractor was terminated. Progress on the runaway is so far on track and we understand that both the runaway and the taxiway will just need a few more layers before it can be paved.”
Ahmad Maghfur went on to note that it would not likely see any significant costs overruns being passed through to MAHB as the delays were not caused by the variation of its order and its contractual terms we e fixed, which implied the risk of higher costs to be fully borne by the contractors.
“MAHB may likely reach its boiling point should the klia2 be delayed again and would not entertain any additional cost pass through,” he opined.
“Assuming the above scenario, our fair value is cut from RM7.23 per share to RM6.50. The lower fair value is largely attributed to the lower overall cash flow MAHB is expected to generate due to weaker non aeronautical revenue churned.
“Pending confirmation of the delay from Management, we leave our earnings forecasts unchanged for now.” Meanwhile, MAHB is slated to announce its results today (Friday April 26) whereby Ahmad Maghfur anticipated commendable results for 1QFY13.
“Earnings are expected to be within expectations, with core net profit of RM95 million ( a dip by 13 per cent year on year) on the back of RM730 million in revenue (an increased 11 per cent annually).
“Though revenue is expected to rise higher on the back of higher passenger volume and spending, we anticipate a lower bottomline due to the higher user fee incurred, expected to double on a full year basis,” he emphasised.
“We reiterate that this drop is not alarming as it is purely an accounting entry hitting the income statement due to the depletion of the residual amount in the balance sheet.
The higher user fee incurred has no impact to cash outflow as the percentage and quantum paid remains unchanged.”