AIRPORT (FV RM7.53 - BUY) Company Update: KLIA2 Takes Shape

The new KLIA2, currently 51.8% completed, is on track for full operations by April 2013. With almost 4x the retail space at MAHB’s existing LCCT, this new terminal alone  could potentially generate revenue amounting to RM120m. The response from retailers has been overwhelming, with over 700 applicants eyeing the 225 outlets up for rental. We see MAHB generating strong cash flow not only from the rising demand for travel but also from the development of townships near KLIA. We maintain our earnings forecasts and BUY call, at an unchanged FV of RM7.53.

Completion on track. For the first time, MAHB organized a site visit for the investment community last Thursday to witness the progress of construction  at KLIA2, which is on track to be operational by April 2013. With construction now 51.78% complete, the project is 89.9 days ahead of its original works schedule. This will provide room for the its existing operations  to make the transition  to the  new terminal.  We note that the upcoming KLIA2, which will be the  world’s  largest low cost carrier terminal with an annual capacity to handle  45m passengers, is designed with the flexibility to accommodate future growth and expansion.

The airport retail concept.  With a total space 257,845sq m (vs 64,067sq m at the current LCCT), of which 35,200 sq m (vs 9,259 sq m at the current LCCT) are dedicated to retail outlets, KLIA2 provides MAHB with a large retail footprint with which the airline operator can tap into the growth in passenger numbers, as low cost carriers proliferate and consumer affluence grows. With a target of handling 30m passengers over 5 years (equivalent to a CAGR of 9.8%), MAHB intends to boost its sales per pax to RM40 from RM22 currently. We understand that  40% of  the 225 outlets at KLIA2 (vs 61 at the current LCCT) will comprise food and beverage outlets, 50% retail outlets and 10% services-related outlets. The size of each outlet ranges from 15 sq m to 300+ sq m.

Overwhelming take-up. The demand  from potential tenants for KLIA2’s  retail outlets has been overwhelming. There are 700 applications for the  225 outlets  although  the asking rental price is equivalent to that for the KLIA main terminal. Based on MAHB’s latest 1Q numbers, the rates at KLIA average RM505 psf, which is 9% higher than the current RM464 psf charged at the existing LCCT. However, we note that at the current RM505 psf rate, MAHB’s earnings from KLIA  are currently  weighed down by  the fact that a  sizeable  portion  is  rented out to  non-duty free outlets at the main terminal building, which typically do not fetch high rental yields. As a comparison, MAHB fetches as  high  as RM715 psf at the  KLIA  satellite building, which predominantly  consists of duty-free shops. This rate is about 42% and 54% higher than those fetched at the Main Terminal building and the existing LCCT respectively.

Source: OSK