We are positive on the signing of MAHB's MOU agreement with Mitsui Fudosan Co Ltd yesterday to develop an upscale factory outlet complex near KLIA. This move will mark its first foray into developing its landbank toward diversifying its earnings base. We make no changes in our earnings estimates pending more details on the JV. MAHB is our top aviation pick. Maintain BUY. Our RM8.00 FV is based on DCF, with WACC of 9.1%.
Setting up a factory outlet. Malaysia Airports (MAHB) announced yesterday that it has entered into an MOU with Mitsui Fudosan Co Ltd (MF) to set up a JV or any other arrangement to develop an upscale factory outlet centre, which will be located near KLIA. MF, a company incorporated in Japan, is a leading real estate developer listed on the First Section (Main Board) of the Tokyo Stock Exchange. It is mainly engaged in developing office buildings, shopping centers, hotels, sports and leisure facilities, resort facilities and retail centres (shopping malls and factory outlets).
Progressing as planned. MAHB has been expressing its intention of developing its Sepang landbank in the near term, and is now planning for an upscale factory outlet centre as the first project on the said land. The complex, which will sit on approximately 50 acres, will involve a gross development cost of about RM335m. It will be developed in three phases and provide a total lettable area of about 47,000 square meters upon completion. We understand that the proposed location will be some 5km near MAHB’s headquarters. This project will be followed by other developments, including an auto city and a food and beverage (F&B)) centre. Within the 50 acres, there is also potential for a golf course, an aviation training academy and concert halls. We understand that the factory outlet is targeted to be operational by end-2013 to mid-2014.
Aeropolis in the making. There is landbank of a whopping 22,156 acres surrounding KLIA, of which 6,000 acres has been allocated for existing airport infrastructure. With the remaining 16,156 acres still undeveloped, MAHB has until 2069 to capitalize on the land for potential development. These potential developments would probably be undertaken in the same way the group’s existing Integrated Complex Terminal was built via collaboration with WCT, in which MAHB was given a 30% associate interest in exchange for land to be developed while all capex will be borne by WCT. These potential developments will see MAHB raking in royalties, dividends and income share. Like the aforementioned 30% stake, note that we have yet to incorporate any incremental earnings from any of these potential developments.
FYE Dec (RM’m)
|
FY10
|
FY11
|
FY12f
|
FY13f
|
FY14f
|
Revenue
|
1812.9
|
1934.3
|
2151.7
|
2532.3
|
2959.3
|
Net Profit
|
365.7
|
396.5
|
462.7
|
412.7
|
600.5
|
% chg y-o-y
|
842.1
|
1670.9
|
-1080.8
|
4550.6
| |
Consensus
|
439.1
|
404.2
|
455.4
| ||
EPS
|
33.2
|
36.0
|
38.2
|
34.1
|
49.6
|
DPS
|
14.8
|
16.9
|
19.1
|
17.1
|
24.8
|
Dividend yield (%)
|
2.7
|
3.1
|
3.5
|
3.1
|
4.5
|
ROE (%)
|
8.7
|
10.2
|
10.6
|
9.0
|
12.3
|
ROA (%)
|
4.1
|
4.9
|
5.2
|
4.4
|
6.2
|
PER (x)
|
16.6
|
15.3
|
14.5
|
16.2
|
11.1
|
BV/share
|
3.01
|
3.22
|
3.62
|
3.80
|
4.04
|
P/BV (x)
|
1.8
|
1.7
|
1.5
|
1.5
|
1.4
|
EV/EBITDA (x)
|
10.9
|
11.3
|
10.8
|
9.8
|
7.2
|
Boost to revenue. KLIA2, capable of handling up to 45m passengers, is expected to reach 50% capacity by its first year of operations. Come FY14, MAHB’s revenue is expected to expand by 38% from the RM2.151bn it expects to register in 2012. A significant portion of the total will be derived from higher rental income from KLIA2, which will offer more than four times the retail space at the existing LCCT. Although the group’s operation costs are expected to surge 32%, we see immense incremental flow to EBITDA, which will surge 46% from RM840m in 2012 to RM1.23bn in FY14. This should boost MAHB’s bottomline to RM600m in FY14 from RM462m in FY12.
Khazanah placement to enhance liquidity. Khazanah’s placement of 8% of its 49% stake in MAHB yesterday is expected to enhance liquidity in the counter moving forward. This divestment exercise is in line with the Government’s objective to trim its strategic shareholding in government-linked companies.
MAHB our top aviation pick; best bet to capture rising travel demand and aggressive expansion by carriers. We like MAHB for its stable cash-generating business model, especially in view of the upcoming KLIA2, scheduled to be operational by 1 May 2013. Apart from growing revenue and profits from the higher rental revenue earned, MAHB also stands to benefit from the aggressive expansion of the region’s airlines, notably from low cost carriers AirAsia and Malindo. The former has doubled its order for aircraft and brought forward their delivery to defend its market dominance in Malaysia. A potential price war between these low cost carriers should well stimulate low cost travel demand, which would ultimately benefit MAHB.
Maintain BUY. Positive free cash flow in FY14 a re-rating catalyst. In the absence of any incurring major capex upon completion of KLIA2, we expect MAHB to generate at least RM800m in free cash flow come FY14. The group’s ability to generate consistent free cash flow from FY14 onwards (at 12% yield) will enable MAHB to pay higher dividends. We estimate that the airport operator may provide a net yield of 4.5% by FY14. We maintain our BUY call, with our DCF-based FV unchanged at RM8.00, premised on a WACC of 9.1%.
Figure 1: Map layout of the proposed project
Source: Company Data
Figure 2: The look and feel of the outlet
Source: Company Data
FYE Dec (RMm)
| ||||||||||||
Assumptions
|
FY10
|
FY11
|
FY12f
|
FY13f
|
FY14f
|
Cash Flow
|
FY10
|
FY11
|
FY12f
|
FY13f
|
FY14f
| |
Pax handled (m)
|
57.8
|
64.0
|
67.2
|
74.6
|
80.6
|
CFO
|
314.8
|
499.7
|
572.5
|
988.1
|
1017.6
| |
Aircraft handled ('000)
|
578.1
|
632.1
|
659.8
|
723.3
|
773.9
|
CFI
|
-810.3
|
-1080.0
|
-1400.0
|
-1103.0
|
-206.1
| |
Spending per Pax (RM)
|
7.1
|
7.4
|
7.6
|
8.8
|
9.5
|
CFF
|
1767.2
|
-181.1
|
1003.6
|
-55.8
|
-481.8
| |
Dividend Payout (%)
|
45%
|
47%
|
50%
|
50%
|
50%
|
FCFF
|
-483.0
|
-585.3
|
-829.5
|
-112.8
|
818.7
| |
Net Income
|
FY10
|
FY11
|
FY12
|
FY13
|
FY14
|
Per Share Data
|
FY10
|
FY11
|
FY12f
|
FY13f
|
FY14f
| |
Revenue
|
1812.9
|
1934.3
|
2151.7
|
2532.3
|
2959.3
|
Number of shares
|
1100.0
|
1100.0
|
1210.0
|
1210.0
|
1210.0
| |
Cost of inventories sold
|
-216.3
|
-243.2
|
-269.8
|
-349.1
|
-414.2
|
Sales Per Share (RM)
|
1.6
|
1.8
|
1.8
|
2.1
|
2.4
| |
Employee benefits expense
|
-382.4
|
-443.7
|
-465.9
|
-517.2
|
-558.6
|
Core EPS (sen)
|
33.2
|
36.0
|
38.2
|
34.1
|
49.6
| |
Others
|
-498.9
|
-484.6
|
-575.8
|
-709.2
|
-758.3
|
DPS (sen)
|
14.8
|
16.9
|
19.1
|
17.1
|
24.8
| |
EBITDA
|
715.3
|
762.8
|
840.1
|
956.8
|
1228.2
|
BVPS (RM)
|
3.0
|
3.2
|
3.6
|
3.8
|
4.0
| |
Depreciation & amortization
|
-172.5
|
-174.4
|
-211.7
|
-456.3
|
-481.7
|
FCFF /PS (sen)
|
-43.9
|
-53.2
|
-68.6
|
-9.3
|
67.7
| |
EBIT
|
542.9
|
588.3
|
628.4
|
500.4
|
746.5
| |||||||
Net Interest Expense/ Income
|
-16.9
|
6.7
|
2.6
|
-2.8
|
-9.7
|
Valuation
|
FY10
|
FY11
|
FY12f
|
FY13f
|
FY14f
| |
Operating earnings
|
526.0
|
595.0
|
631.0
|
497.6
|
736.8
|
Current price
|
5.53
| |||||
Associates and JV
|
30.0
|
31.5
|
33.1
|
PER (x)
|
16.6
|
15.3
|
14.5
|
16.2
|
11.1
| |||
EI:
|
Enterprise value
|
7829.2
|
8596.4
|
9049.6
|
9389.5
|
8900.9
| ||||||
Special dividends
|
2.1
|
25.5
|
0.0
|
0.0
|
0.0
|
EV/EBITDA (x)
|
10.9
|
11.3
|
10.8
|
9.8
|
7.2
| |
Associates and JV
|
-79.4
|
-59.1
|
0
|
0
|
0
|
Div Yield (%)
|
2.7
|
3.1
|
3.5
|
3.1
|
4.5
| |
PBT
|
446.5
|
535.9
|
661.0
|
529.1
|
769.9
|
FCF Yield
|
-7.9
|
-9.6
|
-12.4
|
-1.7
|
12.2
| |
Tax
|
-157.5
|
-173.0
|
-198.3
|
-116.4
|
-169.4
|
P/FCF
|
-12.6
|
-10.4
|
-8.1
|
-59.3
|
8.2
| |
MI
|
-0.7
|
0.0
|
0.0
|
0.0
|
0.0
|
Current price
|
5.53
| |||||
Net Profit
|
288.4
|
362.9
|
462.7
|
412.7
|
600.5
| |||||||
Core Net Profit
|
365.7
|
396.5
|
462.7
|
412.7
|
600.5
|
Growth (%)
|
FY10
|
FY11
|
FY12f
|
FY13f
|
FY14f
| |
Pax handled (m)
|
10.7
|
5.0
|
11.0
|
8.0
| ||||||||
Balance Sheet
|
FY10
|
FY11
|
FY12f
|
FY13f
|
FY14f
|
Aircraft handled ('000)
|
9.3
|
4.4
|
9.6
|
7.0
| ||
Assets
| ||||||||||||
Non-current assets
|
Spending per Pax (RM)
|
4.1
|
3.0
|
15.0
|
8.0
| |||||||
PPE
|
237.8
|
266.2
|
340.0
|
411.1
|
479.7
|
Revenue
|
6.7
|
11.2
|
17.7
|
16.9
| ||
Plantation dev
|
47.2
|
46.2
|
45.1
|
44.0
|
42.9
|
EBITDA
|
6.6
|
10.1
|
13.9
|
28.4
| ||
Land use rights
|
7.9
|
7.8
|
7.6
|
7.5
|
7.3
|
EBIT
|
8.4
|
6.8
|
-20.4
|
49.2
| ||
Intangible assets
|
3812.5
|
4727.2
|
5843.2
|
6423.9
|
6084.2
|
PBT
|
20.0
|
23.3
|
-20.0
|
45.5
| ||
AFS
|
242.1
|
249.7
|
254.7
|
259.8
|
265.0
|
Core Net Profit
|
8.4
|
16.7
|
-10.8
|
45.5
| ||
Others
|
467.2
|
487.8
|
559.3
|
651.0
|
767.6
| |||||||
4814.8
|
5784.9
|
7049.9
|
7797.3
|
7646.7
|
Key Ratios
|
FY10
|
FY11
|
FY12f
|
FY13f
|
FY14f
| ||
Current assets
|
ROE
|
8.7
|
10.2
|
10.6
|
9.0
|
12.3
| ||||||
Inventories
|
60.9
|
78.5
|
81.6
|
109.2
|
127.4
|
ROA
|
4.1
|
4.9
|
5.2
|
4.4
|
6.2
| |
Trade and other receivables
|
695.0
|
785.0
|
729.6
|
667.3
|
795.2
|
Net Cash/ (Net Debt)
|
-1137.9
|
-1905.1
|
-2358.3
|
-2698.2
|
-2209.6
| |
Cash and cash equivalents
|
1539.8
|
778.3
|
954.4
|
783.6
|
1113.3
|
Net Gearing
|
34%
|
54%
|
54%
|
59%
|
45%
| |
Others
|
0.5
|
0.4
|
0.4
|
0.4
|
0.4
|
Current Ratio
|
3.16
|
1.87
|
2.29
|
1.29
|
1.56
| |
2296.2
|
1642.3
|
1766.0
|
1560.6
|
2036.3
|
Interest Coverage
|
13.7
|
31.3
|
61.3
|
26.9
|
33.0
| ||
Total assets
|
7111.0
|
7427.2
|
8815.9
|
9357.9
|
9683.0
| |||||||
Margin (%)
|
FY10
|
FY11
|
FY12f
|
FY13f
|
FY14f
| |||||||
Equity and liabilities
|
EBITDA
|
39.5
|
39.4
|
39.0
|
37.8
|
41.5
| ||||||
Share capital
|
1100.0
|
1100.0
|
1210.0
|
1210.0
|
1210.0
|
EBIT
|
29.9
|
30.4
|
29.2
|
19.8
|
25.2
| |
Share premium
|
822.7
|
822.7
|
1320.4
|
1320.4
|
1320.4
|
PBT
|
24.6
|
27.7
|
30.7
|
20.9
|
26.0
| |
Retained earnings
|
1387.0
|
1625.2
|
1856.5
|
2062.9
|
2363.1
|
Core PATAMI
|
20.2
|
20.5
|
21.5
|
16.3
|
20.3
| |
Others
|
0.2
|
-1.0
|
-1.0
|
-1.0
|
-1.0
| |||||||
Total equity
|
3309.9
|
3546.9
|
4385.9
|
4592.2
|
4892.5
| |||||||
Non-current liabilities
| ||||||||||||
Other financial liability
|
177.7
|
183.5
|
212.7
|
269.3
|
323.0
| |||||||
Loans and borrowings
|
2500.0
|
2500.0
|
3100.0
|
2896.6
|
2684.0
| |||||||
Trade and other payables
|
289.8
|
234.4
|
260.1
|
336.6
|
399.3
| |||||||
Others
|
106.0
|
83.6
|
85.2
|
55.7
|
76.4
| |||||||
3073.6
|
3001.5
|
3658.0
|
3558.1
|
3482.7
| ||||||||
Current liabilities
| ||||||||||||
Loans and borrowings
|
0.0
|
0.0
|
0.0
|
315.9
|
315.9
| |||||||
Trade and other payables
|
676.8
|
841.4
|
718.7
|
863.3
|
948.5
| |||||||
Others
|
50.7
|
37.4
|
53.3
|
28.3
|
43.4
| |||||||
727.5
|
878.8
|
772.0
|
1207.5
|
1307.8
| ||||||||
Total liabilities
|
3801.1
|
3880.4
|
4430.0
|
4765.7
|
4790.5
| |||||||
Total equity and liabilities
|
7111.0
|
7427.2
|
8815.9
|
9357.9
|
9683.0
|
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