AirAsia  (AIRA  MK,  BUY,  FV:  MYR2.66)  says  it  will  not  move  out  of  the LCCT  to  the  new  KLIA2  until  all  safety  and  security  issues  have  been resolved even though the existing terminal is to be closed after 9 May. AirAsia has the bargaining chip given its sizeable operation, and we see risk  of  a  delay  in  KLIA2’s  opening.  Maintain  NEUTRAL  on  the  sector. MAHB  (MAHB  MK,  BUY,  FV:  MYR9.80)  is  our  Top  Pick  as  outlook  for carriers remain challenging.  

What’s new?

Not budging from LCCT.  In a statement yesterday, AirAsia said it will not move out of the existing LCCT to the new KLIA2 “until all safety and security issues have been addressed’’ even though the existing terminal will be officially closed after 9 May. The LCCT will be literally empty and devoid of the services of immigration customs and the relevant agencies. All  other  airlines  (Malindo  Air,  Cebu  Airlines,  Tiger  and  Mandala)  are slated  to  move  on  KLIA2’s opening  date  on  2  May,  with  Cebu  Pacific having  the  honour  of  being  the  first  airline  to  take  off  from  the  new terminal that day. With the Government  having stepped in, both AirAsia and  MAHB  will  be  presenting  their  respective  cases  at  a  parliamentary panel.  

Our view

AirAsia  holds  the  bargaining  chip.  We  think  AirAsia’s concerns are valid given  that it is the anchor tenant, operating more than 400 aircraft movements  daily.  Meanwhile,  operating  two  terminals  concurrently  is unlikely  to  be  a  preferred  option  as  there  would  be  a  shortage  of workforce at the terminal such as customs and other relevant agencies. That  said,  AirAsia  has  the  bargaining  power  in  this  situation  given  its huge fleet.

Risk of delay in KLIA2 opening. There is risk of a delay in the opening of  KLIA2,  but  as  we  have  reiterated  earlier,  the  impact  would  not  be severe.  Assuming  the  opening  is  delayed  by  a  quarter,  the  loss  of revenue  from  rental  collection  as  well  as  lower  passenger  spending  is estimated  at  2%  of  our  FY14  topline  forecast.  This  could  potentially shave  10%  off  our  FY14  earnings  estimates,  thus  reducing  our  FV  to MYR9.61 (from MYR9.80).

BUY on weakness. We have BUY calls on both AirAsia and MAHB, but we  are  less  excited  on  the  outlook  for  carriers  due  to  the  challenging yield environment. We anticipate some selling pressure on MAHB today on  the  likelihood  of  a  delay  in  KLIA2’s  opening.  However,  we  advise investors  to  accumulate  on  any  aggressive  selldown  as  we  continue  to favour the outlook for KLIA2 despite this hiccup.

Source: RHB