Malaysia Airports Holdings RM6.09: Buy

Results Review

Share price: RM6.09
Target price: RM7.55

KLIA2 no longer a low cost terminal


Management comes clean. MAHB, at an analyst briefing yesterday,
revealed the latest development of KLIA2. In a nutshell, the project size
is much bigger than originally planned with a capacity of 45m (versus
30m, +50% increase), completion date has been pushed to Apr 2013
(previous Oct 2012) and the project cost has soared to RM3.6-3.9b
(versus RM2.0-2.5b, +56%-80% increase). Management asserts new
IRR of >10% (our original estimate 13.2%). We are assessing the
impact to our earnings model and place MAHB under review.

Salient features. This project is no longer low cost; it has all the
amenities and features of a world class terminal. Among the salient
changes are: (1) fitted with aerobridges; (2) bigger terminal size (+71%)
to allocate separation of domestic and international passengers; (3) a
fully automated (semi, earlier) baggage system; (4) longer runway; and
(5) bigger (+131%) landside area to accommodate more aircraft parking
area. Upon completion, KLIA2 will be the world’s largest single terminal
capacity of 45m versus current record holder Dubai T3 with 43m.

Front end cashflow burden. In the original plan, KLIA2 is to be built
over 2-3 phases as the passenger traffic rises. But now, KLIA2 is to be
built to full scale in one go. Whilst we think this will yield better value
over the long-term, it will be a burden on MAHB’s cashflow in the initial
years. MAHB predicts that KLIA2’s maiden utilization rate of 49% (22m
pax) and will gradually increase to 70% 8 years later in 2021. KLIA2 will
look and feel spacious for the first 4-5 years.

Funding uncertainties may cap near-term share price. MAHB’s
current gearing ratio is at a comfy 0.77x and will peak at 0.90x in 2012,
we estimate. But with the higher KLIA2 project cost, this may jump to
1.07-1.16x assuming MAHB raises additional debt. The internal target
is for gearing to, not cross 1.0x, which implies a project debt drawdown
of up to RM3.1b, leaving another RM0.5b-RM0.8m to be funded from
internal funds and new equity. MAHB may discontinue dividends
temporarily or raise new equity – both avenues are not ruled out by the
management. We think that dividend uncertainties and the dilutive
impact from potential new equities may cap near-term share price.
(Information from MBB Investment Bank)