30 May 2013
RHB Research is maintaining its Buy recommendation on Malaysia Airports Holdings Bhd (MAHB) and a fair value (FV) of RM7.23.
It said on Thursday MAHB announced that it has decided to impose liquidated ascertained damages (LAD) on klia2 contractors for the delay in the new terminal’s opening.
“Although contractors can challenge the company’s decision, it could be tough due to the fact that MAHB and its tenants had clearly incurred revenue losses. This is positive for MAHB as any compensation will boost its bottomline. Maintain BUY,” it said
To recap, MAHB noted the contractors’ notification that they are unable to meet their contractual obligations for the opening date of klia2 in June 28, 2013. The contractors have yet to decide the date of completion.
RHB Research said the contractors could potentially challenge the LAD imposition by alleging that MAHB had not suffered any losses. In the research house’s view, not only MAHB suffered a revenue loss but its retail tenants at the upcoming klia2 were in the red.
“Hence, we think any challenges to prevent the LAD to be in force could prove to be tough. Rumours are that MAHB is aiming to seek at least MYR40,000 per day of delay per contractor. However, the rate is highly depended on the work scope. This is clearly positive for MAHB as any compensation would boost its bottomline directly,” it said.
RHB Research said while an LAD may not necessarily cover any cost overruns, MAHB had emphasised that there are no variations in the terminal’s design and since the contractual terms are fixed, any cost overruns would be borne by the contractors.
“We are keeping our earnings forecasts pending the announcement of a new opening date for the klia2.
“Maintain BUY, with unchanged RM7.23 FV. On an EV/EBITDA basis, our FV gives an implied value of 11.4 times on the company’s FY14 EBITDA, which is in line with peers’ average,” said the research house.