PETALING JAYA: Malaysia Airports Holdings Bhd ’s (MAHB) results for its third quarter ended Sept 30 came in below analysts’ consensus, with some expecting a subdued fourth quarter ahead.
RHB Research said MAHB might record a softer fourth quarter due to flight cancellations during the peak travel season after the MH370 and MH17 mishaps but opined that the worst might be over.
CIMB Research expected MAHB’s coming quarter to break even on anticipation of wider losses at Istanbul Sabiha Gokcen airport and the normalisation of depreciation recognition.
As for the current quarter, the brokerage noted: “MAHB would have made a small loss had it not overprovided for depreciation in the second quarter.
“As it is, MAHB recognised a depreciation writeback of about RM9mil in the third quarter, resulting in a KLIA2 depreciation charge of just RM23mil per month compared to the normalised rate of RM26mil per month.”
MAHB’s retail arm, Eraman, made a loss in the quarter following an 11% revenue decline and RM30mil in incremental quarterly rental charges after moving to KLIA2, the research house pointed out.
CIMB Research revised its financial year 2014 (FY14)-FY16 forecasts by 45% to 630% mainly due to lower depreciation charges and operating costs but those were partially offset by higher interest costs and lower retail revenue assumptions.
The research unit increased MAHB’s target price marginally from RM7.20 to RM7.22.
However, MIDF Research and RHB Research cut MAHB’s target price from RM8.02 to RM7.53 and from RM8.51 to RM8.04, respectively. Bloomberg’s poll showed six “buy”, 10 “hold” and six “sell” calls for MAHB.
As for the airline sector, CIMB Research made lower yield assumptions for the fourth quarter of 2014 and 2015 due to the industry’s capacity rationalisation.
In a note yesterday, it said it expected the industry capacity rationalisation to take place mid next year.
“The shape and form, and the extent of the rationalisation, is unknown at this point, and could be subject to many changes along the way,” the research house said, adding that the current level of capacity deployment was unsustainable, as three out of four major Malaysian airlines were not profitable.
“Despite the urgency in Khazanah’s August restructuring proposal, it appears that the process of moving on the various action points is administratively lengthy, and may be dependent on securing new leadership, among many other reasons,” it added.
On the other hand, jet fuel prices had fallen from an average of US$119 per barrel in the first nine months to just US$100 per barrel currently, which would benefit airline operators materially next year if prices remained low, CIMB Research said.
“As such, airlines may still be able to deliver respectable earnings growth next year, even without industry-wide capacity adjustments.”
That said, in order to see a sustained re-rating of airline stocks, there had to be a ground-shift in investors’ perception towards the structural overcapacity that was plaguing the sector now, it noted. Otherwise, airlines’ valuations could remain depressed, it added.