PP16832/01/2012 (029059)
Malaysia
Company Update
9 December 2011
Malaysia Airports Holdings
Buy (unchanged)
KLIA2 revisited
Share price:
Target price:
RM5.80
RM7.00 (from RM7.55)
Project is viable. We conclude that the revised KLIA2 project is viable
with IRR of 12.2%-13.1% based on MAHB’s revised capex cost of
RM3.6b-3.9b. The new IRR is slightly lower than our estimate of 14.1%
at RM2.5b capex with more amenities and automation added into the
terminal. But we believe this is an infrastructure that will serve the
needs of the industry for decades to come. We maintain our BUY
recommendation, with a lower DCF-based target price of RM7.00/share
(from RM7.55) due to the initial cashflow burden impact.
Wong Chew Hann, CA
wchewh@maybank-ib.com
(603) 2297 8686
Stock Information
Description: Licensed airport operator in Malaysia, India,
Maldives and Turkey
Ticker:
Shares Issued (m):
Market Cap (RM m):
3-mth Avg Daily Volume (m):
KLCI:
Free float (%):
MAHB MK
1,100.0
6,380.0
0.62
1,472.92
28.75
Major Shareholders:
KHAZANAH
EPF
SKIM AMANAH SAHAM
%
54.0
10.5
6.8
Key Indicators
Net cash / (debt) (RM m):
NTA/shr (RM):
Net Gearing (x):
993.7
3.18
48.3
Historical Chart
10
TNB MK Equity
8
6
Some make sense, some do not. We concur with MAHB’s idea for a
bigger terminal capacity of 45m per annum as we think it will reach this
full capacity within 9-13 years. We however think MAHB should partially
(instead of fully) equip the terminal with aerobridges given AirAsia’s
insistence of not using them. The plan to expand the new runway to
3,960m is unnecessary, in our view, as a 3,000m runway would suffice.
MAHB needs capital. MAHB will need to raise RM250m-550m of
equity based capital based on the higher project cost of RM3.6-3.9b.
This is in addition to the RM600m sukuk facility which we believe will be
drawn down by end of 1Q 2012. Should this equity based capital be
raised via 100% new shares issuance, it translates to 3.9%-8.6% of the
current paid-up. But we think MAHB can easily mix with debt and
reduce the dilution effect of raising new equity.
MAHB must deliver this time. This is the fourth series of delays and
cost revision from the initial plan. We believe the cutoff point for the
project to be feasible is RM4.2b capex, and any cost overrun will render
the project no longer attractive with an IRR of <11%. Also, we think that
MAHB cannot afford for the project to be completed beyond mid-2013
as the cashflow burden will eat into its cash reserve.
Earnings lower due to higher terminal cost. We have revised our
2013 earnings by -33%. The 2013 number is materially lower due to the
initial depreciation and interest payments. We have imputed xx months
of KLIA2 being in operation in our 2013 forecast. We nevertheless
expect MAHB to maintain positive EBITDA growth in 2013 on the back
of its strong operational capabilities.
Malaysia Airports Holdings – Summary Earnings Table Source: Maybank IB
4
FYE Dec (RM m)
Revenue
EBITDA
Recurring Net Profit
Recurring Basic EPS (Sen)
EPS growth (%)
DPS (Sen)
2
Performance:
52-week High/Low
Absolute (%)
Relative (%)
Jan-10
Oct-09
Jul-09
Apr-09
Jan-09
Oct-08
Jul-08
Apr-08
0
RM7.02/RM4.5
1-mth
3-mth
6-mth
1-yr
YTD
(6.3)
(5.8)
(7.2)
(5.6)
(4.9)
(0.8)
(6.8)
(4.3)
(7.6)
(4.6)
2009A
1,609.6
614.6
350.4
31.9
14.8
16.9
2010A
1,812.9
706.9
378.1
34.4
7.9
17.2
2011F
2,038.2
795.3
476.1
43.3
25.9
21.6
2012F
2,215.6
922.1
550.8
49.0
13.2
21.6
2013F
2,519.8
972.9
272.6
24.3
(50.5)
21.6
PER
EV/EBITDA (x)
Div Yield (%)
P/BV(x)
16.9
10.8
2.9
1.9
16.9
10.4
3.0
1.9
13.4
10.2
3.7
1.8
11.6
10.7
3.7
1.7
23.4
9.9
3.7
1.7
Net Gearing (x)
ROE (%)
ROA (%)
0.07
10.8
7.0
0.29
8.9
4.8
0.48
14.0
6.6
0.86
14.9
6.9
0.79
7.0
3.1
-
-
390.0
430.5
382.2
Consensus Net Profit (RM m)
Kim Eng Hong Kong is a sub sid iar y of Malayan B anking B erh ad
SEE APPENDIX 2 FOR IMPORTANT DISCLOSURES AND ANALYST CERTIFICATIONS
Malaysia Airports Holdings
What’s the commotion between MAHB-AirAsia about?
Long time brewing. The recent public spats between MAHB and
AirAsia regarding KLIA2 was unfortunate. Each side have their version
of reality and what the KLIA2 project should be. We think it’s a battle of
perception rather than personal in nature. Fortunately, a truce has been
called and both sides have heeded as there is media silence on this
issue.
 AirAsia’s view point
AirAsia is visibly upset with the incessant delays of KLIA2 completion
date because it impairs its ability to expand and has to defer its firm
aircraft orders. This will result in significant opportunity cost, and also
reputational damage to its vendors and head of states whom it has
promised to commence flights to their countries but only to cancel due
to LCCT constraints. For all its misery, AirAsia does not get any
compensation from MAHB.
Therefore, when the higher airport tax and aeronautical tariff was
ratified, AirAsia was very upset and responded in an effort to revoke the
higher charges. However, the authorities made it clear than the revised
tariffs are here to stay.
 MAHB’s view point
KLIA2 is a very important investment for MAHB and it wants to ensure
that KLIA2 is built to the highest specification, remains relevant for a
long period of time, universally accepted by all airlines, and provides
attractive returns to its shareholders. Therefore, proper and diligent risk
mitigation strategies are put in place to ensure the project is a success
in all sorts of scenarios.
AirAsia, through its cloud as the anchor tenant, has demanded for a
basic and low cost design which fits its operational requirements
perfectly. However, should MAHB heed to all of AirAsia’s demands,
KLIA2 risks being a terminal suitable for a very limited number of airline.
MAHB does not want to limit its clientele base and wants to lower its
single client exposure risk. Therefore, it tries to balance out AirAsia’s
demands with the other airlines requirements wherever possible.
Understandably, not all demands can be met.
9 December 2011
Page 2 of 16
Malaysia Airports Holdings
Key changes to KLIA2
From ‘low cost’ to ‘normal’ terminal. The original plan was to make
KLIA2 a simple, hassle free and ultimately very low cost terminal to
operate from. However, step by step, it has morphed into a greater
functional terminal with higher comfort levels whilst maintaining an
efficient cost base. In other words, it is a commercially viable, full
service terminal like any other across the world. We itemise the key
changes and the impact to the project below:Key changes to KLIA2
Description
1. Terminal building
2. Aircraft stands
3. Earthworks
4. Runway #3, taxiway & AGL system
5. Upgrade ATC and public facilities
6. Aerobridges
Original (Feb’ 2009)
RM2.0 billion
Revised
RM3.6-3.9 billion
Increase in
Scope (%)
150,000m² (GFA)
257,000m² (GFA)
+71%
Area = 500,000m²
50 semi contact stands
Area = 803,709m²
68 gates, 8 remote stands
+61%
4.85 million m²
11.2 million m²
+131%
2,500m x 45m (Code C)
3,960m x 60m (Code E)
+65%
Ground level control tower
8km ground roads
Full scale tower (93m height)
15km ground roads
significant
none
80 aerobridges
-
Source: Company
 Terminal building (+RM420m)
The terminal building will be significantly larger (+71%) in terms of floor
space than the original design in order to: (1) accommodate higher
passenger capacity of 45m versus 30m (+50% increase), (2) segregate
international and domestic passengers – previously, both sets of
passengers shared the same premise; and (3) facilitate a fully
automated baggage system – semi automatic earlier. This will increase
costs by RM420m to RM1,417m from RM997m earlier (+42% increase).
Schematic of the original and revised KLIA2 terminal design
Source: Company
9 December 2011
Page 3 of 16
Malaysia Airports Holdings
45m passenger growth forecast realistic. Looking at historical traffic
growth rates in the graph below, KLIA enjoyed a 10-year CAGR of 8.8%
whereas Malaysian air traffic grew by only 5.8%. MAHB has used an
average growth rate of 5.8% for KLIA2’s future growth projection which
means it will reach full capacity by 2026 – 13 years after
commissioning. We think this is a conservative projection as KLIA and
LCC air travel has proven to be very robust (achieving high growth
rates despite two major recessions in 2001-02 and 2008-09).
Historical growth rates at KLIA and Malaysia
KLIA
Projected passenger traffic and growth rate at KLIA2
Malaysia Total
Growth rate (RHS)
50
2010:2000 CAGR
KLIA = 8.8%
Malaysia = 5.8%
20%
Passenger traffic (LHS)
million
25%
CAGR 5.8%
40
15%
30
22
10%
24
26
30
28
32
34
36
37
39
41
42
44
46
10%
8%
6%
20
4%
10
2%
5%
0%
2000
2002
2004
2006
2008
2010
0
Sources: Company, MMC, Maybank IB
0%
2013
-5%
2015
2017
2019
2021
2023
2025
Source: Company
In the table below, we show when KLIA2 will reach full capacity of 45m
passengers p.a. relative to various traffic growth rate scenarios. We use
4.0% growth as the worst case scenario (reminiscent of a prolonged
recession period), MAHB’s base case of 5.8% growth and historical
growth rate of 8.8%. We think the odds are for growth rates to be 5.8%
and above, which suggests KLIA2 could reach full capacity within 9-13
years. The conclusion clearly suggests that KLIA2’s 45m capacity is
realistic and is not “too big” as initially feared.
KLIA2 full capacity forecast relative to growth rates
Average growth rate (%)
Years to full capacity
4.0%
(worst case)
5.8%
(base case)
8.8%
(historical rate)
18.0
12.6
8.5
Sources: Company, Maybank IB
Separation between domestic & international. We understand that
this was mooted out of security concerns. The Department of Civil
Aviation (DCA) and Immigration Department were not comfortable with
the original design whereby domestic and international passengers can
intermingle in the departure and arrival halls for fear of illegal foreigners
without documents leaching their way into the country via domestic
counters. This concern is understandable given the huge terminal
capacity.
Automatic baggage system. This change of plan was due to the
realisation that the manual baggage system is unable to handle the
massive 45m passenger capacity. In retrospect, it should have been a
fully automatic baggage system from the very start.
9 December 2011
Page 4 of 16
Malaysia Airports Holdings
Suspicious. We find it suspicious that MAHB is able to extend the
construction of the original terminal building which was a 2 level 2storey building into a 3 level 9-storey building without the need to
reinforce the building foundation. The foundation requirement for a 9storey versus 2-storey building is materially different and this change in
design suggests that the foundation laid on the original building was
always meant for a 9-storey building. The picture below shows KLIA2
with its foundation laid and erection works taking place. This picture
was taken in Jul 2011, four months before the anoouncement of a
change in design was made.
Overhead view of KLIA2
Runway B
Satellite
building
Terminal Building
Runway C
Sources: Wikipedia, Maybank IB
• Additional aircraft stands (+RM160m)
The total number of aircraft stands has increased to 76 from 50 (+52%).
We think this is a good idea as we envisage that AirAsia alone will
absorb 45-60 stands in the near future. AirAsia currently fully dominates
the 35 stands at the existing LCCT and has been complaining that it is
grossly insufficient. In adiition, AirAsia X with its fleet of widebody
Airbus A330 will need its fair share of parking stands.
We think these additional aircraft stands will go a long way towards
attracting airlines that currently are unable to go to the LCCT due to
insufficient gates and suitable slot times. For example, Jetstar Asia and
Lion Air (both are LCC) have chosen to serve from the main KLIA
terminal for the moment due to congestion issues at the LCCT.
• Additional earthworks (+RM670m)
This is the biggest bill for KLIA2’s addition in capex and it stems from
the additional ground works of +131% in ground area. This will result in
a materially larger working area for the airport. MAHB states that this
will be used to house aircraft maintenance hangars, cargo facilities and
airline offices (which includes AirAsia’s permanent headquarters). In
addition, there will be an integrated complex (for retail) adjoining to the
main terminal building (70:30 concession between WCT and MAHB).
9 December 2011
Page 5 of 16
Malaysia Airports Holdings
• Longer runway (+RM180m)
The new runway (runway C) will be lengthened and expanded to
3,960m and upgraded to a Code E runway – the highest grade that
allows all types of commercial aircraft to land, including an Airbus A380.
We are of the opinion that the runway C lengthening is redundant and
adds no value. Firstly, AirAsia fleet type only needs a runway length of
3,000m. Secondly, runway C is situated too far away from the main
terminal and satellite building (>3.0km) for any aircraft to make effective
use of it – it makes more sense for them to use runways A & B.
Pictorial schematics of KLIA
Runway A
Current LCCT
Future
Satellite
Building
Runway B
>3.0 km
2.2 km
Runway C
Sources: KLIA Master Plan, Maybank IB
• Public infrastructure and DCA facilities (+RM390m)
MAHB is also going to incur the cost of basic infrastructure (roads,
drainage and sewerage, etc) – originally under the Government’s
coffers. In addition, it will build a full scale control tower with upgraded
air traffic control systems. These are nessesarry measures to cope with
the massive capacity and to ensure smooth operations. MAHB states
that they will be able to recoup this cost by charging the Government
lease charges of RM10m-15m per year.
 Aerobridges (+RM120m)
What’s the fuss about aerobridges? An aerobridge is an enclosed,
movable connector between the aircraft to the terminal building. The
first aerobridge was introduced back in 1959 in the USA. San Francisco
International was the first airport to install this machinery, and it is now
a standard equipment in every major airport across the world.
Picture of an aerobridge affixed to an aircraft
9 December 2011
The objective of this machinery is to allow passengers to board and
disembark the aircraft without having to walk along the apron and be
exposed to the open environment. This is a much more comfortable
proposition as the passengers are not exposed to direct sunlight, rain
(or snow), extreme cold and noise from aircraft jetblast. In addition, it is
also highly beneficial for the disabled, infirm or pregnant mothers as
they do not need to climb on steep staircases into/out from the aircraft.
Page 6 of 16
Malaysia Airports Holdings
How much does it cost? It depends on the make and the functionality
of the aerobridge. There are models which are suitable for a specific
fleet, and these tend to be cheaper at around RM0.25m-0.5m each.
The versatile models which can work for almost all types of commercial
aircraft tend to be more expensive at around RM0.7m-1.5m. In KLIA2’s
case, MAHB has estimated a cost of RM120m for 80 aerobriges i.e.
RM1.5m per aerobridge which is at the high end of our estimate.
Cost analysis of an aerobridge. Aerobridges are sturdy machines that
can last as long as the terminal building itself if properly maintained. It is
relatively low maintainence with the occasional greasing, servicing and
change of its rubber liner cab (refer picture). The investment case for
aerobridges is in its utilisation rate – MAHB charges RM85 per use. The
left graph below shows the years to break-even relative to daily usage.
The right graph below shows the average usage rate at the KLIA main
terminal. We estimate the aerobridges at the KLIA main terminal
building took only 6 years to break even.
Payback period for aerobridge relative to usage per day
Years to break-even
25
KLIA main terminal aerobridge usage rate per day
Aerobridge usage per day
12
11
20
AirAsia moved to
LCCT in Mar 2006
10
15
9
10
8
5
7
0
2
3
4
5
6
7
8
9
usage per day
Source: Maybank IB
6
1998
2000
2002
2004
2006
2008
2010
Source: Maybank IB
Are aerobridges worth the investment? MAHB must achieve an
average of >6 usage per day to achieve a decent payback period of
below 8 years. We think this may not be possible considering that
AirAsia Group will be the anchor tenant at KLIA2 with >50% market
share and they have vehemently voiced out against using it. As shown
on the right side graph above, the highest usage/day at the KLIA main
terminal was 10.9x in 2005 when it was at 92.8% operating capacity.
Without AirAsia’s support, the aerobridge project is likely to fail.
Why does AirAsia oppose the aerobridge? AirAsia is keen to
eliminate non-value add cost wherever possible. By not using
aerobridges and not incurring the RM85 charge, it can save
approximately RM4.0m/year for its LCCT operations alone. Secondly,
approximately 5 valuable minutes are saved for each turnaround as
passengers are able to embark and disembark from two exit points
(front and rear doors).
What we think about the aerobridge issue. We agree with MAHB’s
argument that aerobridges have a fundamental role at KLIA2. But we
also think that achieving decent utilisation rates should be the top
priority; therefore we think the best trade off is to reduce the number of
aerobridges by half, to 40. Airlines that want to use the aerobridge can
do so and those that do not, will also have an option to do so. This will
ensure a high utilisation rate for the installed aerobridges and provide
decent returns on the investment.
9 December 2011
Page 7 of 16
Malaysia Airports Holdings
Financial viability of KLIA2
Basis of assumption. Our base case assumptions are: (1) project cost
of RM3.9b – the high end of MAHB’s forecast (RM2.5b was the base of
our assumption under the original KLIA2 plan); (2) capital structure of
90:10 debt:equity which requires MAHB to raise RM140m of new equity
@ 2.2% new equity assuming current market prices; (3) new airport
tariffs and PSC as announced by MAHB; (4) sukuks of RM600m raised
at a profit rate of 4.60% – 83bps premium to MGS, consistent with AAA
rating premium; (5) top-up loan of RM410m at 6.5% – current BLR rate;
and (6) project WACC of 5.4% (NOTE that this is the WAAC for KLIA2
project alone, it does not represent the WAAC of the whole company).
 Results: 12.2% IRR (22-years) and RM7.6b NPV
Still feasible. Our analysis reveals that the project is viable at an
attractive 22-year IRR of 12.2% with a NPV of RM7.58b. This is lower
than our original forecast of an IRR of 13.2% with a NPV of RM6.08b.
More importantly, it will be cashflow positive from its first year of
operations with a projected EBITDA of RM266m and CFO of RM96m in
2013. This should allay fears of a cashflow drain on the parent as the
KLIA2 project would be self funding.
However, on a net income level, we estimate that KLIA2 will be lossmaking for the first three years of operation due to the high depreciation
effect (with the higher capex). This is normal for any capital intensive
project as the initial depreciation is high in relation to the lifespan of the
project.
Summary of LCCT Earnings Table

FYE Dec
RM million unless otherwise stated
Aeronautical revenue
Non-aeronautical revenue
Retail revenue (Eraman)
Total Revenue
Revenue growth
2013*
2014
2015
2016
2017
2018
2019
2020
2021
2022
263
312
203
778
-
432
366
297
1,095
41%
472
395
327
1,194
9%
508
445
357
1,309
10%
546
455
389
1,389
6%
587
465
424
1,476
6%
716
475
463
1,654
12%
764
486
501
1,751
6%
787
496
525
1,808
3%
824
507
558
1,889
4%
Operational cost
Operational cost growth
(513)
(726)
42%
(783)
8%
(841)
7%
(899)
7%
(962)
7%
(1,040)
8%
(1,110)
7%
(1,164)
5%
(1,231)
6%
266
34.2%
369
39%
33.7%
411
12%
34.5%
468
14%
35.8%
490
5%
35.3%
513
5%
34.8%
615
20%
37.1%
641
4%
36.6%
644
0%
35.6%
658
2%
34.8%
(254)
(170)
(157)
0
(157)
(259)
(170)
(58)
0
(58)
(259)
(170)
(10)
0
(10)
(259)
(170)
53
0
53
(259)
(170)
83
0
83
(259)
(170)
115
0
115
(142)
(170)
342
(43)
300
(142)
(170)
380
(82)
297
(142)
(124)
414
(94)
320
(142)
(124)
440
(98)
342
96
201
249
312
342
373
441
439
461
484
EBITDA / interest paid
DSCR (CFO / interest paid)
1.56
0.57
2.17
1.18
2.42
1.47
2.76
1.84
2.88
2.01
3.02
2.20
3.62
2.35
3.77
2.10
5.17
2.95
5.29
3.10
Passengers carried (million)
Capacity utilisation
22.5
50%
24.3
54%
26.3
58%
28.1
62%
30.0
67%
32.1
71%
34.3
76%
36.4
81%
37.4
83%
39.0
87%
EBITDA
EBITDA growth
EBITDA margin
Depreciation & Amortisation
Interest paid
Profit before tax
Cash tax
Net Income
Cash from Operations
Note:2013 is for 8 months beginning April
Source: Maybank IB
9 December 2011
Page 8 of 16
Malaysia Airports Holdings
Capital structure outlook
Capital required. We understand that MAHB will provide for a
minimum of 10% of uncollateralized equity for the KLIA2 project.
Furthermore, MAHB’s cash requirement at any given point of time is
RM400m (RM300m for 6 months operational expenses and RM100m
for dividend provision).
Based on these assumptions, MAHB must raise capital to fund the
higher KLIA2 project cost. Looking at the table below, MAHB needs to
raise RM550m for our base case of RM3.9b KLIA2 cost. Technically
speaking, MAHB can raise 100% debt but the management has stated
that they are cautious of raising more than their allocated RM3.1b
sukuk facility for fear that it may undermine their AAA rating. This
leaves them with the choice of either ceasing dividend payments for two
years (MAHB pays ±RM200m dividends p.a.) or raising new equity
(8.6% new equity via either private placement or rights issue at current
share price).
MAHB’s capital requirement
Scenario
KLIA2 Cost
figures in RM million
Best case
3,600
Base Case
3,900
Worst Case
4,200
250
360
(110)
250
390
(140)
250
420
(170)
Debt portion
Available facility
Drawn down
Debt Surplus / (Deficit)
3,240
3,100
(2,500)
(140)
3,510
3,100
(2,500)
(410)
3,780
3,100
(2,500)
(680)
Total Surplus / (Deficit)
(250)
(550)
(850)
MAHB's available equity
MAHB's required equity
Equity Surplus / (Deficit)
Sources: Company, Maybank IB
We favour debt. The cheapest method is to raise 100% debt as it is
the cheapest option (±4.5% vs. ±10.5% cost of equity) and MAHB’s
gross gearing would still be within the levels of global listed airports
(refer table below). The issue of AAA rating is secondary in our view as
ratings will probably go up when KLIA2 becomes more profitable.
Gearing ratio of selected listed airports
(X)
Average gearing ratio = 1.05x
2.00
1.62
1.50
1.39
1.25
MAHB gearing is currently 0.77x.
It will rise to 1.07x-1.16x
assuming 100% debt is raised
1.10
1.00
0.50
0.97
0.84
1.07-1.16
0.70
0.93
0.62
0.77
Copenhagen
Aeroporto
de Paris
Vienna
Zurich
Fraport
Macquarie
Japan
AOT
Beijing
MAHB
0.00
Sources: Company, Bloomberg, Maybank IB
9 December 2011
Page 9 of 16
Malaysia Airports Holdings
Other concerns
Will KLIA2 finish on time? The ability to complete the project by April
2013 remains to be seen. We are fairly confident that the terminal
building will be completed on time, this is the easy part. But we doubt
that runway C can be completed in time because the earthworks
require 1-2 years to stabilise before any tarmac can be paved. The 11th
hour announcement that runway C will be elongated to 3,960m raises
our doubts.
Will KLIA2 project cost rise again? We have listed the project viability
below based on various scenarios. If the KLIA2 project cost hovers
within MAHB’s guidance of RM3.6b-3.9b, the project is viable with
decent IRR’s of >12%. The cuttoff point is at RM4.2b (+8% cost
overrun), anything above that and the project IRR is <11% and we
would deem it not attractive and not bankable.
KLIA2’s project IRR and NPV
Scenario
KLIA2 Cost
Project IRR
NPV (RM million)
Best case
3,600
Base Case
3,900
Worst Case
4,200
13.1%
7,648
12.2%
7,579
11.3%
7,523
Source: Maybank IB
9 December 2011
Page 10 of 16
Malaysia Airports Holdings
Earnings revisions

2011 & 2012
There is no change to our 2011 and 2012 forecasts.

2013
We have cut our 2013 earnings by 33% to RM273m from RM408m
earlier due to: (1) a higher depreciation charge from the terminal cost of
RM3.9b from RM2.5b (we have depreciated over 22 years being the
remaining life of MAHB’s airport concession); (2) a higher interest bill as
MAHB will take in RM1.0b of additional loans; and (3) higher
operational expenses due to the significantly larger KLIA2 size.
We wish to highlight however the high initial depreciation charge is
accounting treatment and distorts the true performance of the company.
We expect EBITDA and CFO to achieve growth YoY, which signifies
the good state and health of the company.
Valuation
Discounted cash flow. We retain our DCF valuation methodology with
a lower target price of RM7.03 (round down to RM7.00). Our
assumptions are: (i) a 22-year cash flow projection – the remaining
duration of the concession period, (ii) a terminal growth rate of 0%, and
(iii) WACC of 9.2%. The DCF valuation better reflect the growing
fundamentals compared to the PER valuation method with profits
expected to come off in 2013 as the KLIA2 becomes operational with
large interest and depreciation/amortisation costs kicking in while
awaiting the revenue to catch up.
Undemanding valuation. We think P/CFO and EV/EBITDA serve as a
good cross check valuation for MAHB as this is a cashflow based
investment. PER can be distorted due to the maturity profile of the
assets and accounting treatment issues. Based on these valuation
metrics, MAHB is still attractive given its undemanding P/CFO and
EV/EBITDA multiples of 7-11x in the forward 2012-13 period.
Target Price of RM7.00, implying 21% potential upside
Latest price
At target price
Current
2011F
2012F
2013F
PER
14.5
13.4
11.9
24.0
P / CFO
11.3
11.2
8.9
7.1
EV / EBITDA
10.2
10.4
10.9
10.0
Current
2011F
2012F
2013F
PER
17.5
16.2
14.3
28.9
P / CFO
13.6
13.5
10.7
8.5
EV / EBITDA
10.2
10.4
10.9
10.0
Source: Maybank IB
9 December 2011
Page 11 of 16
Malaysia Airports Holdings
INCOME STATEMENT (RM m)
FY Dec
2010A
2011F
2012F
2013F
Revenue
EBITDA
Depreciation & Amortisation
Operating Profit (EBIT)
Interest (Exp)/Inc
Associates
One-offs
Pre-Tax Profit
Tax
Minority Interest
Net Profit
Recurring Net Profit
1,812.9
706.9
(162.7)
544.2
(15.7)
(80.5)
0.0
445.0
(150.4)
(0.7)
294.6
378.1
2,038.2
795.3
(166.2)
629.1
23.1
0.0
0.0
652.2
(176.1)
(0.0)
476.1
476.1
2,215.6
922.1
(179.6)
742.5
12.0
0.0
0.0
754.5
(203.7)
(0.1)
550.8
550.8
2,519.8
972.9
(433.3)
539.6
(167.2)
1.0
0.0
373.4
(100.8)
(0.0)
272.6
272.6
39.0%
30.0%
16.3%
8.9%
4.8%
20.9%
39.0%
30.9%
23.4%
14.0%
6.6%
23.4%
41.6%
33.5%
24.9%
14.9%
6.9%
24.9%
38.6%
21.4%
10.8%
7.0%
3.1%
10.8%
CASH FLOW (RM m)
FY Dec
2010A
2011F
2012F
2013F
Profit before taxation
Depreciation
Net interest receipts/(payments)
Working capital change
Cash tax paid
Others (incl'd exceptional items)
Cash flow from operations
Capex
Disposal/(purchase)
Others
Cash flow from investing
Debt raised/(repaid)
Equity raised/(repaid)
Dividends (paid)
Interest payments
Others
Cash flow from financing
Change in cash
445.0
162.7
15.7
(275.0)
(140.5)
(2.9)
296.9
(833.6)
39.1
(312.7)
(810.3)
1,991.9
0.0
188.9
0.0
(395.7)
1,785.1
1,271.7
652.2
166.2
(23.1)
496.1
(176.1)
23.1
1,138.4
(1,870.1)
0.0
0.0
(1,870.1)
0.0
0.0
238.0
0.0
(246.5)
(8.4)
(740.1)
754.5
179.6
(12.0)
3.8
(203.7)
12.0
734.1
(1,839.9)
0.0
0.0
(1,839.9)
1,010.0
0.0
238.0
170.0
(926.9)
491.1
(614.6)
373.4
433.3
167.2
219.3
(100.8)
(167.2)
925.3
(200.0)
0.0
0.0
(200.0)
0.0
0.0
238.0
170.0
(871.4)
(463.4)
261.9
Revenue Growth %
EBITDA Growth (%)
EBIT Growth (%)
Net Profit Growth (%)
Recurring Net Profit Growth (%)
Tax Rate %
BALANCE SHEET (RM m)
FY Dec
2010A
2011F
2012F
2013F
Fixed Assets
Other LT Assets
Cash/ST Investments
Other Current Assets
Total Assets
2,320.1
2,290.5
1,539.8
868.9
7,019.3
3,283.9
2,292.7
799.7
986.0
7,362.2
5,120.1
2,276.2
185.1
1,071.7
8,653.2
4,862.7
2,276.3
446.9
1,218.8
8,804.7
ST Debt
Other Current Liabilities
LT Debt
Other LT Liabilities
Minority Interest
Shareholders' Equity
Total Liabilities-Capital
0.0
714.0
2,500.0
516.0
5.5
3,283.9
7,019.3
0.0
803.4
2,500.0
531.4
5.5
3,521.9
7,362.2
0.0
725.3
3,510.0
553.6
5.5
3,858.8
8,653.2
0.0
804.3
3,510.0
591.6
5.5
3,893.3
8,804.7
Share Capital (m)
Gross Debt/(Cash)
Net Debt/(Cash)
Working Capital
1,100.0
2,500.0
960.2
1,694.7
1,100.0
2,500.0
1,700.3
982.3
1,124.1
3,510.0
3,324.9
531.5
1,124.1
3,510.0
3,063.1
861.5
RATES & RATIOS
FY Dec
2010A
2011F
2012F
2013F
39.0%
30.0%
16.3%
8.9%
4.8%
20.9%
0.5
(34.6)
0.3
2.8
0.0
0.0
0.0
29.24
3.5
0.4
39.0%
30.9%
23.4%
14.0%
6.6%
23.4%
0.5
NA
0.3
2.9
0.0
0.0
0.0
48.28
3.1
0.4
41.6%
33.5%
24.9%
14.9%
6.9%
24.9%
0.4
NA
0.3
2.5
0.0
0.0
0.0
86.17
3.8
0.5
38.6%
21.4%
10.8%
7.0%
3.1%
10.8%
0.9
(3.2)
0.3
2.5
0.0
0.0
0.0
78.67
3.6
0.5
EBITDA Margin %
Op. Profit Margin %
Net Profit Margin %
ROE %
ROA %
Net Margin Ex. El %
Dividend Cover (x)
Interest Cover (x)
Asset Turnover (x)
Asset/Debt (x)
Debtors Turn (days)
Creditors Turn (days)
Inventory Turn (days)
Net Gearing %
Debt/ EBITDA (x)
Debt/ Market Cap (x)
Source: Company, MaybankIB
9 December 2011
Page 12 of 16
Malaysia Airports Holdings
Appendix 1: Background of the LCCT / KLIA2
1. 2005. AirAsia Berhad requested for a LCCT as the main terminal at
KLIA was not suitable for low cost operations and is unable to cater for
future growth requirements.
2. 2006. MAHB unveiled the LCCT at the south end of the KLIA
complex on 23 March 2006. The LCCT costs RM108m and has a
capacity of 10 million passengers a year. This is a temporary solution
until a permanent solution is found.
Entrance foyer of the LCCT
3. 2007-2008. Due to the increasingly “challenging” relationship with
MAHB and worried about its future growth plans, AirAsia Group has
explored various sites (Subang, Bukit Buruntung, etc) to develop a new
airport which specifically caters for low cost carriers.
4. December 2008. The Cabinet approved the construction of a new
airport dedicated for LCCT on a 2,800 hectare site in Labu, Negeri
Sembilan. The new airport, estimated to cost RM1.6b (excluding land
cost), will be built and funded by a joint venture of Sime Darby, AirAsia
and other potential participants. The project was supposed to
commence in first quarter 2009 and finish by end of first quarter 2011.
Source: NST, 20 December 2008.
Typical scene at the LCCT during peak period
5. January 2009. The Government rejected the consortium’s proposal
to build a new airport at Labu, Negeri Sembilan. Instead, a new LCCT
will be built by MAHB at the existing KLIA complex. MAHB has pledged
that a new LCCT can be built at competitive cost at the existing KLIA
land bank and it will be ready by October 2011.
Source: Utusan Malaysia, 31 January 2009
6. March 2009. MAHB expanded the existing LCCT to cater for 15
million passengers a year. By now, the LCCT infrastructure is struggling
to cope with the rapid growth. AirAsia’s future growth plans are
negatively impacted by the LCCT’s lack of spare capacity.
Current
LCCT
KLIA
New
LCCT
7. October 2009. Deputy Transport Minister, Datuk Abdul Rahim Bakri
said that the LCCT is estimated to cost RM2.0b. It is situated 2 km
away from the KLIA and will be able to handle 30 million passengers a
year. The construction will also include a RM100m extension of the
express rail link connecting KLIA to the new LCCT.
Source: Business Times, 30 October 2009
9 December 2011
Page 13 of 16
Malaysia Airports Holdings
8. December 2009. The first contract worth RM362m was awarded to
WCT Berhad for the site preparation, earthworks and main drainage.
Source: Business Times, 30 October 2009
9. January 2010. The second contract worth RM291m was awarded to
Gadang Berhad for earthworks for the runway and taxiways.
Source: Business Times, 30 October 2009
10. May 2010. MAHB gave AirAsia Berhad (LCCT anchor tenant)
assurance that the new LCCT will be ready by March 2012. This is a
seven months delay than originally planned.
Source: Business Times, 3 May 2010
11. June 2010. MAHB’s Managing Director, Tan Sri Bashir stated that
the building size has increased from the one originally planned and the
LCCT requires a revision in design to accommodate the larger building.
No details of the revision were divulged as the tender process has yet
to be completed. The open tender exercise for the terminal was three
months longer than expected.
Source: Business Times, 30 June 2010
12. July 2010. MAHB awarded the third package worth RM997m for
the construction of the low cost terminal building to UEM-Bina Puri JV.
This brings the cumulative value of contracts to date to RM1.6b. There
are still many items that have yet to be awarded (runway, taxiway,
apron, draining the retention pond, relocation of a sewerage plant).
Source: Company, 16 July 2010
13. July 2010. Transport Minister Datuk Seri Kong Cho Ha stated that
the completion date for KLIA 2 is now pushed ahead to October 2012,
this is an additional seven months delay from the previous dateline.
MAHB later clarified that the extra commercial space and runway
extension is the cause of this third delay.
Source: Buseiness Times, 25 January 2011
14. Nov 2011. MAHB announced the final design of KLIA2 whereby it
will be significantly bigger, more amenities and longer runway. Due to
the material change in work required, the cost has been revised up to
RM3.6-3.9b and the expected completion date is pushed to April 2013.
Source: Company, 29 November 2011
 Altogether, there were four revisions to the project completion
date with a total of 19 months delay from the initial plan.
9 December 2011
Page 14 of 16
Malaysia Airports Holdings
APPENDIX 2
Definition of Ratings
Maybank Investment Bank Research uses the following rating system:
BUY
HOLD
SELL
Total return is expected to be above 10% in the next 12 months
Total return is expected to be between -5% to 10% in the next 12 months
Total return is expected to be below -5% in the next 12 months
Applicability of Ratings
The respective analyst maintains a coverage universe of stocks, the list of which may be adjusted according to needs. Investment ratings are
only applicable to the stocks which form part of the coverage universe. Reports on companies which are not part of the coverage do not
carry investment ratings as we do not actively follow developments in these companies.
Some common terms abbreviated in this report (where they appear):
Adex = Advertising Expenditure
BV = Book Value
CAGR = Compounded Annual Growth Rate
Capex = Capital Expenditure
CY = Calendar Year
DCF = Discounted Cashflow
DPS = Dividend Per Share
EBIT = Earnings Before Interest And Tax
EBITDA = EBIT, Depreciation And Amortisation
EPS = Earnings Per Share
EV = Enterprise Value
FCF = Free Cashflow
FV = Fair Value
FY = Financial Year
FYE = Financial Year End
MoM = Month-On-Month
NAV = Net Asset Value
NTA = Net Tangible Asset
P = Price
P.A. = Per Annum
PAT = Profit After Tax
PBT = Profit Before Tax
PE = Price Earnings
PEG = PE Ratio To Growth
PER = PE Ratio
QoQ = Quarter-On-Quarter
ROA = Return On Asset
ROE = Return On Equity
ROSF = Return On Shareholders’ Funds
WACC = Weighted Average Cost Of Capital
YoY = Year-On-Year
YTD = Year-To-Date
Disclaimer
This report is for information purposes only and under no circumstances is it to be considered or intended as an offer to sell or a solicitation
of an offer to buy the securities referred to herein. Investors should note that income from such securities, if any, may fluctuate and that each
security’s price or value may rise or fall. Opinions or recommendations contained herein are in form of technical ratings and fundamental
ratings. Technical ratings may differ from fundamental ratings as technical valuations apply different methodologies and are purely based on
price and volume-related information extracted from Bursa Malaysia Securities Berhad in the equity analysis.Accordingly, investors may
receive back less than originally invested. Past performance is not necessarily a guide to future performance. This report is not intended to
provide personal investment advice and does not take into account the specific investment objectives, the financial situation and the
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9 December 2011
Page 15 of 16
Malaysia Airports Holdings
APPENDIX 2
Additional Disclaimer (for purpose of distribution in Singapore)
This report has been produced as of the date hereof and the information herein maybe subject to change. Kim Eng Research Pte Ltd
("KERPL") in Singapore has no obligation to update such information for any recipient. Recipients of this report are to contact KERPL in
Singapore in respect of any matters arising from, or in connection with, this report. If the recipient of this report is not an accredited investor,
expert investor or institutional investor (as defined under Section 4A of the Singapore Securities and Futures Act), KERPL shall be legally
liable for the contents of this report, with such liability being limited to the extent (if any) as permitted by law.
As of 9 December 2011, KERPL does not have an interest in the said company/companies.
Additional Disclaimer (for purpose of distribution in the United States)
This research report prepared by Maybank Investment Bank Berhad is distributed in the United States (“US”) to Major US Institutional
Investors (as defined in Rule 15a-6 under the Securities Exchange Act of 1934, as amended) only by Kim Eng Securities USA, a brokerdealer registered in the US (registered under Section 15 of the Securities Exchange Act of 1934, as amended).
All responsibility for the distribution of this report by Kim Eng Securities USA in the US shall be borne by Kim Eng. All resulting transactions
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Without prejudice to the foregoing, the reader is to note that additional disclaimers, warnings or qualifications may apply if the reader is
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As of 9 December 2011, Maybank Investment Bank Berhad and the covering analyst does not have any interest in in any companies
recommended in this Market themes report.
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issuers; and no part of the research analyst's compensation was, is, or will be, directly or indirectly, related to the specific recommendations
or views expressed in the report.
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9 December 2011
Page 16 of 16