Delay of klia2 will weaken MAHB, say analystsDelay of klia2 will weaken MAHB, say analysts

KUALA LUMPUR: The continuous delays in the opening of the low-cost carrier terminal klia2 are seen as a burden for Malaysia Airports Holdings Bhd (MAHB), say analysts.

“A year’s delay would see MAHB forking out its cash reserve [of RM774.2 million] and possibly see it distributing a slightly lower dividend,” Mohshin Aziz of Maybank IB Research told The Edge Financial Daily yesterday.

According to a source close to the matter, the shopping mall consisting of 225 retail outlets is expected to be completed by the end of this year, and klia2 will most likely see a delay in its opening stretching to early-2014.

“We believe investors can still accept a six-month delay. However, if it were to be completed next year, we would see MAHB’s position potentially weakened,” said Mohshin.

He noted that the completion of klia2 would likely see investors buying into the share price in response to the promising outlook of the new airport.

“As of now, we are giving it a ‘hold’ call for its narrow 3% upside to our target price. Once it reaches close to 10%, we would upgrade to a ‘buy’ rating,” said Mohshin.

TA Securities’ Thiam Chiann Wen told The Edge Financial Daily that the delay would not affect MAHB’s earnings for its 2013 financial year (FY13) as the depreciation and interest would only be seen from FY14 onwards.

“We expect the delay of klia2 to affect MAHB’s [FY14] earnings, resulting in us reducing its earnings by 6.5%,” she said.

She noted that the research house had also lowered its passenger growth and sales per person assumptions after taking into account the six-month delay. It now expects 65% retail occupancy for FY14 compared with the initial forecast of 80%.

As at the first quarter (1Q) of FY13, she said, MAHB had spent RM3.2 billion on the construction of klia2 since work began in October 2009. The delay may lead to a further cost overrun from the RM4 billion announced last year.

She added that as MAHB’s bond covenant allows it to gear up to 1.25 times, the group has a debt headroom of about RM2 billion, which should be sufficient to fund the additional capital expenditure requirement.

“Even if the new terminal can be completed by the end of this year, MAHB would still need to carry out operational trial runs that may require at least four months. To be conservative, we now expect klia2 to be fully operational by early next year.”

Thiam added that the research house has retained its “sell” call on the stock as it believes the market has not fully factored in the negative price factor arising from the potential delay and cost overrun of klia2.

MAHB’s board announced on May 7 the contractors for klia2 might face “difficulty” in meeting the completion deadline of June 28, despite their earlier commitment to do so.

The airport project was tendered out in 2009, with the original date of completion being September 2011, 20 months ago. The completion has been delayed several times and the estimated cost of the project has also escalated to RM4 billion last year from the initial budget of RM1.9 billion.

This article first appeared in The Edge Financial Daily, on May 29, 2013.

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