News    Yesterday, AIRPORT announced that the new targeted opening date for KLIA2 would be slated in 02 May 2014 after the UEMC-Bina Puri JV confirmed that the completion date for KLIA2 will be 30 April 2014 inclusive of securing the Certificate of Completion and Compliance (CCC) and Operational Readiness & Airport Transfer (ORAT) as per the contractual obligations. 

Comments    We understand the progress for KLIA2 is already at the final stages and is currently at 93%. We believe that given another 10 months time to complete the project and obtain the securing the CCC and ORAT for the opening of KLIA2, which is slated on 02 May 2014 is highly achievable this time around.

Due to the delays on the construction works on KLIA2, AIRPORT has invoked Liquidated and Ascertained Damages (“LAD”) on the contractors with a daily rate of c.RM200k/day. Given the new completion dateline, the LAD charges for the delay would make up to c.RM60m at the end of the project, should the LAD go through. 

Outlook   AIRPORT’s fundamental remains strong despite the delays in KLIA2 as traffic numbers continues to grow healthily. To recap, AIRPORT registered an 8.7% growth on 1Q13 and has guided a 7% traffic growth in 2013.

Forecast    Following the announcement, we are lowering our FY14 forecast by 9% as we further delayed the future contribution of retails and rentals from KLIA2.

Rating   Maintain OUTPERFORM

Despite the delays on KLIA2, AIRPORT remains our Top Pick for the Aviation industry on the back of diversified earnings and better airport traffic from increasing competition between low-cost carriers.

Valuation     In tandem with our earnings revision on FY14, we lowered our TP from RM7.19 to RM6.60 which implies a lower SoP.

Risks    A significant drop in passenger numbers due to catastrophic events.

Source: Kenanga