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Malaysia Airports Holdings - Down on Higher Staff Costs

kiasutrader
Publish date: Mon, 30 Jul 2012, 09:10 AM

Despite higher staff, utilities and maintenance costs, MAHB's 1HFY12 results were in line. Its 2H earnings will be stronger as passenger travel picks up. In spite of the higher airport tax and airfares in 1H, passenger spending habits was not curtailed as sales per pax continued to rise. This affirms our bullish view of the potential success of the KLIA2's retail business, which may rake in substantial gains in FY13 and FY14. Maintain BUY, at a FV of RM7.53.
In line. MAHB's 2Q/2H FY12 core earnings came in at RM98.6m/RM212.1m (q-o-q: -13.2%, y-o-y: -5.3%, YTD: -2.1%) on the back of revenue of RM524.5m/RM1035.6m (q-o-q: +2.6%, y-o-y: +11.1%, YTD: +11.6%). The net exceptional items amounting to RM11.2m included the adjustment of under provision for 2011 bonuses and EPF contribution totaling RM16m, as well as a one-off utilities charge of RM2.9m. On an annualized basis, MAHB's 1H earnings were lower by 10% but we deem the overall results in line with our and consensus forecasts as the higher passengers handled coupled by upward revision in airport tax over the remainder of 2H should make up for the shortfall. Measured against its KPI, MAHB's numbers are on track.
Hit by higher staff and maintenance costs. Despite the higher revenue following the airport tariff revision in 4Q last year and a 4.2% YTD increase in passengers handled, MAHB's earnings was dragged down by higher staff costs (q-o-q: +3.6% y-o-y: +6%, YTD: 13.3%) after the company revised its executive pay scale as well as higher utility expenses arising from a 8.5% electricity tariff increase and the overall maintenance costs relating to KLIA2. These weighed on margins, taking EBITDA margin down a notch down by 0.8ppts to 37% in 1H.
Passenger spending encouraging. As we stated earlier, the higher airport tax as well as airfares paid by passengers did not dampen passenger spending as sales per pax continued to go up (YTD: +5.8%). The higher spending were attributed to KLIA (+9.3%) while the LCCT side's improvement of 2.6% was due to optimization of retail space in the vicinity. 
Retail tenants likely to exit LCCT gradually. While we note that the space rented out has been declining (q-o-q: -7.9%, y-o-y: -14.4%) since some of the retailers may have started to close shop in anticipation of KLIA2's opening, the rental revenue per sq m overall remained encouraging although rates at LCCT may decline in the remaining sequential quarters to encourage retail tenants to stay on until KLIA2 commences operation. Nonetheless, the higher rates in some of MAHB's strategic spots in LCCT and the likely higher rentals fetched by its other airports were able to more than offset the revenue loss from the exiting tenants.
NALYST BRIEFING HIGHLIGHTS
No change in passenger guidance. Despite 1H passenger numbers growing by only 4.2% y-o-y, management remains confident that the targeted 6%-7% passenger growth for 2012 can be achieved. Passenger growth in 2H would be pushed by the deployment of some chartered flights and MAS' new A380s coupled with extra capacity by foreign airlines. Management also hinted that according to flight schedules, there appears to be an improvement in aircraft capacities deployed by MAS.
Costs for KLIA2 unchanged and completion on schedule. The cost for KLIA2 remains unchanged at RM4bn and the airport is on track to commence operations by April 2013. Construction is currently 60% completed, including the roofing, which was completed this month. Construction of the remaining 40%, mostly consisting of interior fittings, can be ramped up very quickly.
Update on KLIA2 retail outlet tenders. The response from potential retailers has been encouraging, with management signing a number of F&B outlets already. Some 14% of the outlet space offered has been snapped up; or 32 lots out of the total 225 commercial lots comprising 118 lots for retail, 81 lots F&B, and 26 lots for services. This guarantees RM50m in rental revenue, excluding royalty, for the first year. Indicative rental rates appear to be much higher than the rental rate it fetches in LCCT. As a gauge, LCCT generates RM30m per annum in minimal guaranteed rental from its 61 outlets. And with KLIA2 offering 225 outlets and assuming only 60% are rented out (20% reserved for ERAMAN and 20% reserved for future tenants), rentals generated from KLIA2 could total RM210m. With royalty, this sum could hover around RM250-260m in additional revenue.
Update on Sabiha Gokcen. Management alluded to the possibility of injecting more capital into the loss-making Istanbul Sabiha Goksen International Airport (ISGIA), to the tune of RM30m, depending on whether it could restructure its loan, given that interest costs is high at 10%. Though ISGIA is expected to be EBITDA positive this year, it is projected to only report a positive bottomline by 2016. Note that we have excluded ISGIA's losses in deriving MAHB's core earnings due to the FRS accounting treatment losses.
Maintain BUY. We maintain our earnings forecasts and BUY recommendation, at an unchanged FV of RM7.53 (premised on 9% WACC on its DCF).Aside from resilient travel demand, we continue to like MAHB for its strong cash flow coming from the rentals and royalties from its current operations as well as from the upcoming KLIA2.

Source: OSK
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