Malaysia Airports Holdings Bhd
(Oct 27, RM5.88)
Maintain buy with target price of RM7.36: MAHB reported commendable earnings, with its cumulative core net profit coming in line with our estimates but ahead of consensus. Top line growth was fuelled by higher passenger spending while its bottom line got a boost from a higher utilisation rate and economies of scale.
Under the operating agreement signed in 2009, MAHB is entitled to compensation from the government should an overdue hike in tariffs be put on hold. As such, the government's recent move to freeze MAHB's proposed tariff hikes on aircraft landing and parking, due for an increase effective 2012, could see MAHB reducing the payment of user fees.
In the pipeline are two more joint venture (JV) initiatives and a 50-acre development of a factory outlet.
Save for a net exceptional loss item of RM2.2 million (after associates' FRS 139 impact and a RM22 million dividend income gain), MAHB's 3QFY11 core net profit stood at RM110.4 million or 17.3% quarter-on-quarter (q-o-q '16.6% year-on-year [y-o-y]; 12.1% year-to-date [YTD]) on the back of revenue of RM483.7 million or 2.4% q-o-q or 2.4% (8.4% y-o-y; 7% YTD). On a cumulative basis, the results were in line with our forecasts as revenue and core net profit accounted for 72% and 78% of our full-year forecasts, but beat consensus estimates. The y-o-y revenue growth was driven by resilient passenger growth (-0.3% q-o-q; 10.8% y-o-y; 12% YTD) although we note that q-o-q passenger growth was seasonally weaker owing to the lull during Ramadan. This was offset by higher non-aeronautical contribution boosted by more robust passenger spending on maximising rental space at the low-cost terminal.
MAHB managed to cut costs further during the nine-month period, with earnings before interest, tax, depreciation and amortisation (Ebitda) margin improving by 0.7 percentage points to 37.6% against 36.9% last year. Costs came down due to higher staff productivity as it achieved better economies of scale.
The management said KLIA2 may not be completed in time for commencement in 2012. Should the terminal be completed only in early 2013, the impact on our FY12 forecasts would be small as this may give rise to only a small 3.5% reduction in earnings. Valuation-wise, a delay would carry little weight in lowering our fair value for MAHB over the longer term. The management will be holding a briefing in the near future to update the investment community on the progress of KLIA2.
The management indicated that it is tendering for two more private JV initiatives with a utilities provider (likely to be Tenaga Nasional Bhd) and a hotelier. The JV will be structured like the recently announced JV partnership with WCT Bhd, in which MAHB is allocated free equity interest participation in exchange for the use of airport land by the JV partner. In addition, the government is developing a 50-acre (20ha) piece of land for a factory outlet to attract more visitors to the airport and boost non-aeronautical revenue.
With the 9MFY11 earnings in line with our estimates, we make no changes to our earnings at this juncture. We reaffirm our 'buy' call, with a discounted cash flow-derived target price of RM7.36, based on 9% weighted average cost of capital. MAHB is a defensive aviation play which will do well in both good and bad times owing to resilient air travel demand and its large base of budget travellers. ' OSK Research, Oct 27
This article appeared in The Edge Financial Daily, October 28, 2011.
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