CIMB Research said on Thursday this more than wiped out the rise of Istanbul Sabiha Gokcen (ISG) to a core profit of RM30mil in FY15 from losses the year before.
“The Malaysian earnings have been weak since the opening of klia2 in May 2014 lifted the cost base significantly, coinciding with poor traffic growth.
“Capacity cutbacks by MAS also caused traffic to migrate from the high-tariff KLIA MTB to the low-tariff klia2,” it said.
Commenting on the FY15 results, the research house said MAHB reported full-year core net profit of RM18mil, some 64% lower than expected, due to a kitchen-sinking exercise upon the recent arrival of the new CFO. Revenue growth was crimped by migration of traffic from KLIA MTB to klia2.
“We raise our DCF-based target price (to RM5.85 from RM5.73) given Malindo’s move back to KLIA main terminal building (MTB) next month, and also a higher valuation of ISG on stronger-than-expected airline growth.
“But we maintain our Hold call, as MAHB will likely experience pedestrian traffic growth in 2016, and we believe tariff equalisation at klia2 is unlikely this year,” it said.
CIMB Research noted that the arrival of the new CFO also led to a big increase in 4Q15’s provisioning for doubtful debts, maintenance charges, and other costs, which was a typical kitchen sinking. Even the depreciation estimate was revised materially higher in the final quarter.
MAHB uses the “Unit of Production” method of depreciation, and for FY15, it had reduced its estimate of the total passenger traffic until the end of its concession, with the latter now forming a smaller denominator in the UoP calculation.
“With kitchen sinking out of the way, the Malaysian profits should improve in FY16, aided by the transfer of Malindo back to KLIA MTB from 15 March, which will allow MAHB to earn higher PSC tariffs.
“We forecast 5.5% traffic expansion in FY16, from just 0.4% growth in FY17, driven by the expansion of AIRASIA, Malindo, and the foreign airlines, offsetting the MAS capacity reductions.
“But the overall level of profits in Malaysia should still be very lethargic, compared to what MAHB used to earn prior to the opening of klia2.
“We are more optimistic on ISG, as 1H16 forward airline capacity schedules suggests that ISG can deliver passenger traffic growth of 17% in FY16, up from our previous estimate of 8%. We have raised our ISG profit forecasts by 20-30% for FY16-18. Furthermore, the value of ISG has risen with the higher euro-to-ringgit exchange rate,” it said.
Despite the ISG forecast upgrade, CIMB Research said the FY16 group EPS have been revised lower by 22%, as it cut the Malaysia earnings by 15% due to higher cost assumptions.
It also deducted the 5.75% dividend paid to perpetual debt securities from its measure of core earnings.
“In our view, MAHB’s share price will not rerate on organic traffic growth; it will rerate only if it gets a special tariff hike at klia2. But the probability of this is low, as the government has not even ceased the subsidy of the existing PSC tariffs,” it pointed out.
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