MAHB reported flattish earnings in 3Q12 on the back of higher operating costs despite a jump in revenue. Nonetheless, they were largely in line with our andconsensus expectations and hence, we are retaining our earnings projections. We rolled forward our DCF valuation, raising our FV to RM8.00 premised at 9.5% WACC. Maintain BUY, as we continue to like its prospects moving forward. The stock has been punished for not generating positive free cash flow in recent years due to capex run-ups, but we foresee this situation changing come FY14 as weexpect MAHB to generate RM405m and RM570m in FY14 and FY15 respectively.
Flat on higher costs but forecasts unchanged. MAHB reported 3Q core earnings of RM107.5m (+2% y-o-y, +3% q-o-q) on the back of RM536.7m in revenue (+11% y-o-y, +2% y-o-y) bringing its YTD earnings and revenue to RM326m (+1% y-o-y) and RM1.57bn (+11% y-o-y) respectively. For the quarter, net exceptional items totaled RM4.7m (YTD: RM40m), due to non-recurring expenses for staff provisions/accruals and utilities expenses that were supposed to be incurred last year. Revenue was boosted by higher PSC charges and lower airline incentives on the back of 3% y-o-y and 4% YTD passenger growth. The flattish earnings were largely attributed to higher utilities and maintenance costs coupled by a higher incurred tax rate. 9M earnings were largely in line, accounting for 70% of our full year forecasts and 75% of consensus’. We expect 4Q earnings to catch up on higher pax numbers as new airlines are coming onboard, on top of MAS’ new A380s coming into operation. We maintain our earnings forecasts.
Management briefing highlights. The scheduled completion of KLIA2, which is to be operational by 1 May 2013, is on track. This includes its third runway, with no costs run-ups. AirAsia has confirmed that it will shift to KLIA2 and this should dispel any concerns on delays and costs overruns. MAHB continues to maintain its passenger growth expectation of 6%-7% for FY12, though we reckon it is unlikely to be met given that 9M growth came in at only 4%. It has yet to give any guidance for next year but with the new airlines and MAS A380’s, we expect passenger growth of 11% in FY13.
Roping in the first foreign duty free concessionaire. The management may be roping in an established duty-free concessionaire, allocating up to 30% of total retail space for it. The term of the concession is for 3+2 years. Any impact of cannibalization on Eraman’s sales will be minimal as tobacco and alcohol will still come under their turf, while any impact on other goods will be mitigated by higher concession charges. Bidders are understood to include names such as DFS and other leading global retailers. With a key global retailer coming in on a concession basis, this allows MAHB to collect significant portion of concession upfront. An announcement on all successful tenders for retail space will be made soon.
Flat on higher costs but forecasts unchanged. MAHB reported 3Q core earnings of RM107.5m (+2% y-o-y, +3% q-o-q) on the back of RM536.7m in revenue (+11% y-o-y, +2% y-o-y) bringing its YTD earnings and revenue to RM326m (+1% y-o-y) and RM1.57bn (+11% y-o-y) respectively. For the quarter, net exceptional items totaled RM4.7m (YTD: RM40m), due to non-recurring expenses for staff provisions/accruals and utilities expenses that were supposed to be incurred last year. Revenue was boosted by higher PSC charges and lower airline incentives on the back of 3% y-o-y and 4% YTD passenger growth. The flattish earnings were largely attributed to higher utilities and maintenance costs coupled by a higher incurred tax rate. 9M earnings were largely in line, accounting for 70% of our full year forecasts and 75% of consensus’. We expect 4Q earnings to catch up on higher pax numbers as new airlines are coming onboard, on top of MAS’ new A380s coming into operation. We maintain our earnings forecasts.
Management briefing highlights. The scheduled completion of KLIA2, which is to be operational by 1 May 2013, is on track. This includes its third runway, with no costs run-ups. AirAsia has confirmed that it will shift to KLIA2 and this should dispel any concerns on delays and costs overruns. MAHB continues to maintain its passenger growth expectation of 6%-7% for FY12, though we reckon it is unlikely to be met given that 9M growth came in at only 4%. It has yet to give any guidance for next year but with the new airlines and MAS A380’s, we expect passenger growth of 11% in FY13.
Roping in the first foreign duty free concessionaire. The management may be roping in an established duty-free concessionaire, allocating up to 30% of total retail space for it. The term of the concession is for 3+2 years. Any impact of cannibalization on Eraman’s sales will be minimal as tobacco and alcohol will still come under their turf, while any impact on other goods will be mitigated by higher concession charges. Bidders are understood to include names such as DFS and other leading global retailers. With a key global retailer coming in on a concession basis, this allows MAHB to collect significant portion of concession upfront. An announcement on all successful tenders for retail space will be made soon.
A dividend reinvestment plan. MAHB has announced a dividend reinvestment plan (DRP) and we believe this bodes well for its share price. Khazanah is a major shareholder, with a 49% stake and with its share being illiquid given its tight holding by many institutions (as MAHB runs a cash cow model), we expect many investors to opt for their dividends to be reinvested in new shares - as was the case with Maybank with its high take up rate of 90%. With a number of significant investors holding MAHB shares at a low cost entry averaging at RM3-RM4, this would the decision to reinvest dividends into shares more compelling as it also avoids any brokerage costs. The implementation of the first DRP is expected to be sometime in 1Q2013.
DRP to see minimal impact on dilution. It is too early to incorporate the DRP into our model and earnings estimates as we have yet to know what its take-up rate would be like. Our gut feeling is that it could hover around 70%, with Khazanah likely to opt for shares rather than cash dividends. With the 50% payout policy, an estimated DPS of 19.5sen with a take-up of 70% would ultimately raise 32m in new shares worth RM165m, representing 2.7% of company’s enlarged issued and paid up capital. Any dilution impact on EPS would be minimal at only 2%, after taking into consideration the interest expense saved from the need to take up additional financing. However, with a dividend reinvestment plan in place, it is crucial for Management to continuously address its capex expansion plans and budget to the investment community in order for investors to make a sound decision.
Ride on this cash cow. While earnings are expected to drop next year on higher depreciation and amortization charges due to the completion of KLIA2, investors need to look out for MAHB’s free cash flow, which is expected to return back to positive territory by FY14. This is due its capex commitments freeing up, coupled with the full year contribution of KLIA2. However, the company’s free cash flow for the firm (FCFF) will remain negative for FY12 and FY13, as KLIA2 has yet to be completed. We expect RM405m and RM570m to be earned in FCFF for FY14 and FY15 respectively, in absence of any significant capex commitments.
BUY at a higher FV of RM8.00, a 36% upside. We maintain our earnings forecast but raise our FCFF valuation to RM8.00 (from RM7.53) as we roll over to FY13 numbers with our BUY call maintained. Our DCF is premised on 9.5% WACC based on a 65% equity and 35% debt structure. Dividend yields at the current level stands at 3.3%, among the highest compared to its listed airport peers. This suggests there is more upside in the share price when dividend yields are highly sought after these days. MAHB’s share price has been depressed over the past two years as it has yet to generate any cash flow yields. With the situation changing come FY14, now would be a good time to enter and accumulate more of this potential cash cow stock at its current price.
DRP to see minimal impact on dilution. It is too early to incorporate the DRP into our model and earnings estimates as we have yet to know what its take-up rate would be like. Our gut feeling is that it could hover around 70%, with Khazanah likely to opt for shares rather than cash dividends. With the 50% payout policy, an estimated DPS of 19.5sen with a take-up of 70% would ultimately raise 32m in new shares worth RM165m, representing 2.7% of company’s enlarged issued and paid up capital. Any dilution impact on EPS would be minimal at only 2%, after taking into consideration the interest expense saved from the need to take up additional financing. However, with a dividend reinvestment plan in place, it is crucial for Management to continuously address its capex expansion plans and budget to the investment community in order for investors to make a sound decision.
Ride on this cash cow. While earnings are expected to drop next year on higher depreciation and amortization charges due to the completion of KLIA2, investors need to look out for MAHB’s free cash flow, which is expected to return back to positive territory by FY14. This is due its capex commitments freeing up, coupled with the full year contribution of KLIA2. However, the company’s free cash flow for the firm (FCFF) will remain negative for FY12 and FY13, as KLIA2 has yet to be completed. We expect RM405m and RM570m to be earned in FCFF for FY14 and FY15 respectively, in absence of any significant capex commitments.
BUY at a higher FV of RM8.00, a 36% upside. We maintain our earnings forecast but raise our FCFF valuation to RM8.00 (from RM7.53) as we roll over to FY13 numbers with our BUY call maintained. Our DCF is premised on 9.5% WACC based on a 65% equity and 35% debt structure. Dividend yields at the current level stands at 3.3%, among the highest compared to its listed airport peers. This suggests there is more upside in the share price when dividend yields are highly sought after these days. MAHB’s share price has been depressed over the past two years as it has yet to generate any cash flow yields. With the situation changing come FY14, now would be a good time to enter and accumulate more of this potential cash cow stock at its current price.
Source: OSK
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