INVESTMENT HIGHLIGHTS

• RM1.6b approved by GoM to build Kulim International Airport (KIA)

• KIA to further facilitate the transportation of goods of existing companies in Kulim Hi-Tech Park

• At the same time, logistics facilities at Penang International Airport (PIA) could weather any shift in businesses to Kulim

• PIA to still have upper hand in international growth due to strong international connectivity

• Do not foresee any earnings dilution in the future for PIA

• Maintain BUY unchanged TP of RM9.44 per share

GoM approves to build Kulim International Airport. The Government of Malaysia (GoM) announced that it has approved RM1.6b to build the Kulim International Airport (KIA) in Kedah. This is one out of five high impact projects aimed at bridging the development gap between regions in the Mid-Term Review of the 11th Malaysia Plan. Prior to this, the state of Kedah received Federal Government’s approval to establish a company called KXP AirportCity Holdings to coordinate and manage the development of Kulim Airport.

Our initial thoughts. No solid details have been laid out so far whether KIA will be used either for air cargo or commercial flights or both. However, we do not discount the possibility that KIA will emphasize air freight to further facilitate the movement of goods from companies located in Kulim Hi-Tech Park. In addition, KIA will complement the development of a logistics and manufacturing hub in Sidam.

Logistics facilities to remain appealing in PIA. While such plans would bring up concerns of businesses shifting to Kulim due to lower cost of doing business, we believe that this will be limited with the presence of major global logistics player such as FedEx in Penang International Airport (PIA). FedEx set up an RM17.6m shipping facility spanning 4,830 m2 called the ‘FedEx Gateway’ at Penang International Airport which enables goods to be shipped to the U.S in one business day and overnight delivery to 20 major Asian cities. The services offered by FedEx are made possible with two Boeing 767s and three 40ft trucks connecting Penang by road to Bangkok and Singapore. Internally, the facility features an X-ray scan for all packages regardless of size and has the capacity to sort 2,700 parcels per hour. As such, we believe the existence of such logistics players to retain the attractiveness of PIA as an air cargo hub for MNCs.

PIA to still have the upper hand in international traffic growth. PIA’s total passenger traffic has been growing at a 5-year CAGR of 7.2%. PIA handled 7.78m passengers in 2018 exceeding the design capacity of 6.5m with international passengers growing by 15.2% to 1.54m this year. As such, expansion projects to expand capacity to 12m passengers will start in 2020. Furthermore, we believe that MAHB will continue attracting more international airlines to fly to PIA as what was seen for Langkawi International Airport which welcomed the first flight of TUI Airways from Birmingham. Therefore, PIA’s passenger growth especially for international would not be undermined even if KIA focuses on commercial flights.

Source: MIDF Research - 20 Mar 2019