PETALING JAYA: Research firms called downgrades on Malaysia Airports Holdings Bhd (MAHB), a favourite of aviation analysts, after the airport operator unveiled plans to build a bigger and costlier low-cost carrier terminal dubbed KLIA2.
On Tuesday, MAHB revealed that the total investment for KLIA2, which has been expanded by over 70% in terms of size, will increase to RM3.4 billion to RM3.9 billion from the initial RM2 billion.
HwangDBS Research, which downgraded the counter to “hold” from “buy”, said with the higher investment in KLIA2, MAHB might see higher depreciation cost than initially expected during the early years.
“In our opinion, additional revenue to cover the higher capital cost may take time to kick in, as passengers gradually increase. This would result in lower utilisation in the initial years,” said the research house.
HwangDBS cut MAHB’s earnings estimate for FY12 ending December by 3% to RM381 million and FY13 by 17% to RM350 million in view of higher depreciation costs.
However, it said the depreciation would be partially offset by the larger retail space and potential additional revenue of about RM40 million per year due to rental of the airport control tower to the government.
Hwang DBS’ move to cut MAHB’s earnings estimate was echoed by others, including RHB Research, which reduced its FY13 net profit forecast by 10.2% to RM410.7 million and OSK Research, which cut its FY13 earnings by 8% to RM450.2 million. RHB maintained its “buy” call and OSK its “outperform” on MAHB.
CIMB said it is looking at a 30% dip in core earnings once KLIA2 commences operations in 2013 due to higher operating costs.
The research firm said the major factor in its earnings downgrade is the possible huge rise in staff count, maintenance and repair costs, utilities and other miscellaneous costs as result of a bigger KLIA2.
CIMB downgraded its core earnings per share estimates by 12.5% for FY13, 7% in FY14 and 1% to 2% from FY15 to FY18.
The research house also expects MAHB to raise a further RM600 million from its remaining debt facility to help finance KLIA2.
It assumes the additional RM600 million equity issue can be achieved via a 10% placement at around RM5.50 per placement share.
CIMB said the equity funding inherently increases its weighted average cost of capital (WACC) estimate as MAHB’s cost of equity is more than double its cost of debt, at 10% versus just 4.6% for its debt.
It has also turned cautious on MAHB’s plans to expand beyond what is necessary as it has seen other airport operators, such as Thailand’s AOT of Suvarnabhumi, making the same mistake.
It advised investors to stay on the sidelines as it downgraded the stock from “outperform” to “neutral” with a lower target price at RM6.90 from RM7.95.
HwangDBS believed that MAHB’s cash levels would be stretched following the hike in costs for the new KLIA2 and factored in a cash call. It also trimmed MAHB’s dividend payout policy to 40% in view of the need to preserve cash levels.
OSK Research revised its fair value on the airport operator downwards but retained its “buy” call. It derived a lower fair value of RM7.26 from RM8.10 previously based on an unchanged WACC assumption of 9%.
It also noted that MAHB’s management expects total net savings of RM766.15 million over 20 years from “front loading” its future capital expenditure.
It added that the total capex for KLIA2 seems astronomical at first glance, but on a unit cost basis at RM4,694 per sq m, its cost is relatively lower than KLIA’s RM8,000 per sq m, and Kota Kinabalu and Kuching airports’ RM6,000 per sq m each.
OSK noted MAHB may be entitled to sales tax exemptions ranging from 5% to 10% on the equipment purchased, which would potentially reduce the capex by RM150 million to RM200 million.
So far, the counter has four “buy”, and one “outperform”, “neutral”, “hold” and “under review” calls each, based on Bloomberg data and the latest reports issued by the research houses.
This article appeared in The Edge Financial Daily, December 1, 2011.
On Tuesday, MAHB revealed that the total investment for KLIA2, which has been expanded by over 70% in terms of size, will increase to RM3.4 billion to RM3.9 billion from the initial RM2 billion.
HwangDBS Research, which downgraded the counter to “hold” from “buy”, said with the higher investment in KLIA2, MAHB might see higher depreciation cost than initially expected during the early years.
“In our opinion, additional revenue to cover the higher capital cost may take time to kick in, as passengers gradually increase. This would result in lower utilisation in the initial years,” said the research house.
HwangDBS cut MAHB’s earnings estimate for FY12 ending December by 3% to RM381 million and FY13 by 17% to RM350 million in view of higher depreciation costs.
However, it said the depreciation would be partially offset by the larger retail space and potential additional revenue of about RM40 million per year due to rental of the airport control tower to the government.
Hwang DBS’ move to cut MAHB’s earnings estimate was echoed by others, including RHB Research, which reduced its FY13 net profit forecast by 10.2% to RM410.7 million and OSK Research, which cut its FY13 earnings by 8% to RM450.2 million. RHB maintained its “buy” call and OSK its “outperform” on MAHB.
CIMB said it is looking at a 30% dip in core earnings once KLIA2 commences operations in 2013 due to higher operating costs.
The research firm said the major factor in its earnings downgrade is the possible huge rise in staff count, maintenance and repair costs, utilities and other miscellaneous costs as result of a bigger KLIA2.
CIMB downgraded its core earnings per share estimates by 12.5% for FY13, 7% in FY14 and 1% to 2% from FY15 to FY18.
The research house also expects MAHB to raise a further RM600 million from its remaining debt facility to help finance KLIA2.
It assumes the additional RM600 million equity issue can be achieved via a 10% placement at around RM5.50 per placement share.
CIMB said the equity funding inherently increases its weighted average cost of capital (WACC) estimate as MAHB’s cost of equity is more than double its cost of debt, at 10% versus just 4.6% for its debt.
It has also turned cautious on MAHB’s plans to expand beyond what is necessary as it has seen other airport operators, such as Thailand’s AOT of Suvarnabhumi, making the same mistake.
It advised investors to stay on the sidelines as it downgraded the stock from “outperform” to “neutral” with a lower target price at RM6.90 from RM7.95.
HwangDBS believed that MAHB’s cash levels would be stretched following the hike in costs for the new KLIA2 and factored in a cash call. It also trimmed MAHB’s dividend payout policy to 40% in view of the need to preserve cash levels.
OSK Research revised its fair value on the airport operator downwards but retained its “buy” call. It derived a lower fair value of RM7.26 from RM8.10 previously based on an unchanged WACC assumption of 9%.
It also noted that MAHB’s management expects total net savings of RM766.15 million over 20 years from “front loading” its future capital expenditure.
It added that the total capex for KLIA2 seems astronomical at first glance, but on a unit cost basis at RM4,694 per sq m, its cost is relatively lower than KLIA’s RM8,000 per sq m, and Kota Kinabalu and Kuching airports’ RM6,000 per sq m each.
OSK noted MAHB may be entitled to sales tax exemptions ranging from 5% to 10% on the equipment purchased, which would potentially reduce the capex by RM150 million to RM200 million.
So far, the counter has four “buy”, and one “outperform”, “neutral”, “hold” and “under review” calls each, based on Bloomberg data and the latest reports issued by the research houses.
This article appeared in The Edge Financial Daily, December 1, 2011.
