8 November 2014
MALAYSIA Airports Holdings Bhd (MAHB) has been on a turbulent ride as it continues to be saddled with criticisms against klia2 while dealing with a steeply lower net profit in the latest quarterly results.
The airport operator’s share price fell 15 sen to RM7.08 this week following its third-quarter earnings report. Prior to that, MAHB announced its acquisition of the remaining 40% that it did not own in Istanbul Sabiha Gokcen International Airport (ISG).
The company posted a paltry profit of RM1.6mil in the third quarter ended Sept 30. While this showed an improvement from the net loss of RM44.7mil in the preceding quarter, it came in below analysts’ consensus, with some expecting a subdued fourth quarter ahead.
There have been critics aplenty of MAHB’s klia2 and the latest earnings report came under immense scrutiny from investors and the public at large but the company feels that klia2 will add to MAHB rather than be a drag on its earnings faster than what many expect.
MAHB chief financial officer Faizal Mansor says klia2 “should be profitable from the first full year of operation in 2015.”
“Having said that, we do not look at klia2 individually as it is just a terminal. klia2 adds to KLIA capacity as a whole,” he notes.
With the opening of klia2, which has a capacity of 45 million passengers, KLIA now has a total capacity to handle 70 million passengers per annum.
According to the latest operating statistics, MAHB airports handled 19.9 million passengers in the third quarter of 2014, down 2.1% over the same period last year.
Analysts say there are some aspects that MAHB can improve on, particularly capitalising on its outlets at its airports, which can act as a hedge against passenger fluctuations – a point Changi airport has capitalised on.
The main reasons why MAHB reported paltry profits in its latest financial statement was because of higher operating cost of running klia2 and the absence of construction profit.
The airport operator, nevertheless, says it remains on track to meet its 2014 target for earnings before interest, tax, depreciation and amortisation (EBITDA) of RM861.4mil as it had recorded RM620mil in EBITDA for the nine months ended Sept 30.
It is confident its profit will ultimately rise in future as klia2 sees higher usage.
Faizal tells StarBizWeek that its net profit will eventually rise in future and explains that a drop in net profit happens when a new terminal is built.
“It is the nature of the airport industry. At klia2, about 88% of shops are open and that figure is expected to rise and add to the company’s profitability.
“We are operating the whole terminal capacity of 45 million pax when utilisation is only 25 million pax at the beginning. Therefore, a higher fixed operating cost.
“In addition, depreciation and interest cost kick in. However, these were offset by a higher commercial/rental revenue (at least RM10mil a month) due to the larger commercial space.
“Going forward, the growth in pax numbers will increase revenue while operating cost are mainly fixed like staff, utilities and maintenance at the beginning. Therefore, net profit will rise from here on,” he says.
According to RHB Research, MAHB might record a softer fourth quarter due to flight cancellations during the peak travel season after the MH370 and MH17 mishaps. It, however, adds that the worst might be over.
On the other hand, CIMB Research expects MAHB’s coming quarter to breakeven on anticipation of wider losses at Istanbul Sabiha Gokcen airport and the normalisation of depreciation recognition.
However, there are few questions that need to be asked. How soon will klia2 be profitable? Will klia2 continue to drag down MAHB with high operating cost to run the hybrid terminal? How will the investment in Turkey pan out for MAHB?
The never ending issues on klia2 prompted MAHB to issue two statements early this week to clarify them. MAHB says it has yet to issue the Certificate of Practical Completion (CPC) for klia2. However, it has embarked on a programme to resolve the settlement issues at the terminal.
Without the CPC, the klia2 terminal building is still under the responsibility of the main contractor, UEM-Bina Puri JV.
When asked on the issuance of CPC, Faizal says: “Please bear with us. We are still going through the process.”
In addition, MAHB has also imposed liquidated and ascertained damages on UEM-Bina Puri JV following the delays caused by the contractors.
klia2 opened on May 2 after numerous delays. The International Civil Aviation Organisation has verified that klia2 is structurally in compliance with its requirements and safety standards.
MAHB reiterated that the Certificate of Completion and Compliance (CCC) was obtained on April 17.
In addition, Faizal says there will be “no more further one-off unrecognised loss for ISG” which was already reflected in their second-quarter financial results.
MAHB currently operates and manages 39 airports in Malaysia, including Asia’s biggest low-cost air terminal, klia2. Apart from ISG, MAHB also has stakes in two airports in India – in Hyderabad and Dehli – with 11% and 10% respectively.
MAHB expects an additional 30% contribution to its revenue from ISG following its recent acquisition. Upon completion of the exercise, ISG will be the largest contributor in terms of revenue from international operations.
Currently, the operations consist of airports in Hyderabad and New Delhi in India, which contributed about 2% to 3% of its total revenue.
It has recently courted British Airways which will resume daily direct flights from Kuala Lumpur to London from May 27, 2015.
Original Source: www.thestar.com.my
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