IS Malaysia Airports Holdings Bhd (MAHB) already fading out of radar contact three years after its listing?
A long awaited sale of the loss making Sepang F1 Circuit and Sepang International Circuit Sdn Bhd (SIC) to the Ministry of Finance for RM389 million is finally about to be concluded.
But is it enough to put the airport manager and operator back in tower control?
Hefty non-core assets aside, MAHB is also bogged down by huge RM1.3 billion in concession fees to be serviced under a concession agreement related to the KL International Airport (KLIA) that was awarded to its wholly-owned subsidiary, Malaysia Airport (Sepang) Sdn Bhd in 1999.
Over the years, MAHB has been paying off some of the fees and the proceeds from the sale of SIC and the circuit will be offset against the concession fees due to the government for 2001 and 2002, but that still leaves at least RM400 million odd to be paid over 2003 and 2004.
Too many lumps
Some analysts contend that MAHB, which operates and manages 38 airports, has too many lumpy items on its plate to chew on, but too little cash flow to work on.
An analyst at a local research outfit wonders about MAHB's ability to finance its coming obligations. Even beyond 2004, its lease and royalty payments could still prove a mouthful. (Although smaller at an estimated RM60 million, it increases by 4 per cent in each subsequent year up to the end of the concession period).
And while its critics laud the sale of SIC as a start, they say that the proposed disposal of MAHB's other non-core assets, the National Exhibition and Convention Centre (NECC) and Asia Pacific Auction Centre, does not seem to be making any headway.
The commercial viability of the NECC is questionable, an analyst says, given the presence of other exhibition centres such as the Putra World Trade Centre, Mines, and another proposed centre at KLCC.
Mayban Research analyst Mak Hoy Kian says talks with Strata Saujana Sdn Bhd on NECC have resumed, “but it doesn't seem very serious.” Should they prove successful, MAHB is expected to recover a book value of RM160 million from the sale.
To others, MAHB's performance last year has been turbulent. After a buoyant first quarter where net profit soared to RM50.6 million versus RM44.2 million in the corresponding quarter a year ago, its second and third quarter performance dipped.
For the cumulative nine months ended September 2002, net profit had dropped to RM114 million from RM150 million for the same period a year ago. The Multex consensus net profit for 2002 is RM159 million (compared to RM180 million achieved in 2001).
This was despite MAHB executive director Rosman Abdullah's confidence in March last year of sustaining its 2001's earnings.
Then, Rosman had said the company was confident of achieving double-digit growth in net earnings for the financial years 2002 and 2003, through additional passenger and cargo volume, and further optimisation of costs. This looks unlikely now.
While MAHB reportedly held preliminary discussions earlier in the week with Lufthansa Airport Services Leipzig GmbH on the possibilities of making KLIA a cargo hub, talks are still at a very early stage.
In the interim, a research outfit states its main reservation about MAHB “is its uninspiring operating performance,” margins having declined sharply in two successive quarters.
An analyst at another research outfit expects revenue from landing and parking fees to be flattish following the government's decision in May 2002 to give new airlines flying into KLIA, a 100 per cent discount on these charges for five years as an incentive to use the airport.
Income from MAHB's retail and hotel operations is also expected to be static.
Hike grant by 2004
However, by 2004, MAHB is expected to get its request for a hike in the passenger service charge (PSC), albeit at a lower rate. In May 2002, it secured a 20 per cent rise in PSC for domestic passengers to RM6 and 12.5 per cent for international passengers to RM45. Unfortunately for MAHB, the bulk of the hike went to ERL Sdn Bhd.
Mayban's Mak says MAHB's future growth hinges on passenger traffic and that KLIA will benefit from Malaysia Airlines and Air Asia's increase in flights.
MAHB has accepted that its initial forecast of handling 25 million passengers by 2004 was too optimistic and now hopes to hit that target by 2008. Last year, total passenger traffic hit 16.33 million, representing a 12 per cent growth over 2001.
However, that was coming from a lower base as the Sept 11 terrorist attacks in 2001 resulted in fewer people flying in the fourth quarter –traditionally a peak period.
MAHB had succeeded in attracting five new airlines – Yemen Airways, Kuwait Airways, Air Macau, Orient Thai and Kyrgyz International Airlines – to fly into KLIA. These smaller catches aside, it needs to lure the bigger transatlantic and transpacific carriers into KLIA for greater traffic growth, analysts say, while keeping an eye on competition from existing airports and newer emerging ones in China.
There are many other aspects that MAHB can improve on, particularly the KLIA outlets, which can act as a hedge against passenger fluctuations – a point Changi and Auckland airport have capitalised on.
On the operational side, it was hoped that Dutch airport operator Schipol International BV would bring value added to KLIA, but that has not panned out. In fact, there have been no takers so far following Schipol's decision not to acquire a 30 per cent stake in MAHB.
An analyst says there is currently little international interest or appetite for airport stocks as investors view it as a utilities stock with no major growth prospects. Moreover, public sentiment makes it difficult for the government - (Minister of Finance holds a 49.26 per cent stake and Khazanah Nasional Bhd a 23.48 per cent holding) to sell MAHB's shares to foreigners below the company's initial public offering price of RM2.50 per share. This compares with MAHB's current share price of about RM1.70.
But two analysts, unlike most of their counterparts, think there is value in the stock.
OSK Research's Hilmi Mokhtar expects the company to be more focused after it has hived off its non-core assets and streamlined its operations. He also thinks MAHB may be successful in persuading the government to convert the concession fees into a royalty payment based on a percentage of returns for the year, as opposed to a flat fee.
HLG Research's Lars Henriksson who has a “contrarian buy” on the stock, agrees the government will not let MAHB down.
By his reckoning, MAHB, which has no gearing and a low level of default or bankruptcy risk, has at least a 26 per cent upside.
“I think it's a good stock to buy long-term,” Henriksson says. His reasoning is basically centred on Air Asia's potential, and the government's proactive approach to the country's airport and port operations.
He says the government is trying to streamline the sectors and will attempt to make them more attractive, citing the revamp of Malaysia Airlines as an example.
Henriksson agrees that in the near- to medium-term, KLIA is unlikely to rival Changi or even Bangkok airport, but contends KLIA can carve a name for itself in the no-frills airlines segment. In short, Malaysia could follow in Europe's rock bottom prices flying experience.
The liberalisation of the aviation industry aside, Henriksson notes Malaysia is the first country in the region to allow a no frills airlines to operate, giving it first mover advantage against its regional peers.
“People underestimate the upside from Air Asia. The airline is growing from nothing to something. Even its success domestically benefits KLIA.”
If KLIA can position itself as a hub in that segment, there could well be a lot more passengers, and money to be made.
Says Henriksson: “It may not be glamorous, but it's about making money. It's about making the airport a toll-way.”