malaysia airports holdings berhad : sabiha-gokcen for long-term prospects - 22/10/2010

8/8/2019 Malaysia Airports Holdings Berhad : Sabiha-Gokcen For Long-Term Prospects - 22/10/2010

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Table 1 : Investment Statistics (MAHB; Code: 5014) Bloomberg: MAHB MK

Net Net

FY E Turnove Profit EPS Grow th PER C.EPS* P/ NTA ROE Gearing GDY

Dec (RMm) (RMm) (sen) (%) (x) (sen) (x) (%) (%) (%)

2009 1,637.1 378.3 34.4 23.8 17.4 - 4.1 23.5 0.1 2.5

2010F 1,822.7 329.4 29.9 (12.9) 19.9 33.0 3.6 18.0 0.2 2.5

2011F 2,001.4 409.8 37.3 24.4 16.0 38.0 3.1 19.6 0.4 3.1

2012F 2,159.2 495.5 45.0 20.9 13.3 38.0 2.7 20.7 0.6 3.8

Main Market Listing /Trustee Stock/Non-Syariah Approved Stock By The SC * Consensus Based On IBES

Looking at longer-term prospects. In the near term, Sabiha GokcenInternational Airport (SGIA) will not significantly contribute to MAHBsearnings as it expects a seven to eight years gestation period. Nonetheless,

management is optimistic in the long-term terminal given its high growth

potential.

One airports loss is another airports gain. While Ataturk InternationalAirport (AIA) is considered to be the main airport of Istanbul, the terminal is

facing capacity constraints and is estimated to have exceeded capacity by

40%. In addition, we note that constraints are exacerbated by the lack of

space surrounding the terminal. Therefore, we believe this provides SGIA

with the opportunity to capture AIAs passenger spillovers.

Geographical advantages. In the same vein, we note that the Asian sideof Istanbul is located in the industrial and residential areas i.e. Bursa,

Gebze, Izmit, Sakarya, Yalova and the Istanbul Anatolian side. The areas

are estimated to have a 20m population contrary to AIAs area which only

caters to around 3% of the Istanbuls total population. In addition, despite

AIAs distance being closer to city centre vis--vis SGIA, we highlight that

the route to and fro AIA is typically congested. We believe this would give

SGIA advantage relative to airport choice.

Incorporating KLIA 2 and SGIA into our fair value. We are taking theopportunity to incorporate the KLIA 2 and SGIA projects into our fair value.

For the KLIA 2 project, we have assumed a project internal rate of return

(IRR) of 8.0%, which implies an equity IRR 17.9%. Discounting back the

projected cashflow at 10%, we estimate that MAHB will yield an

enhancement of RM716.3m, translating to 65.1 sen per share. On the other

hand, for the SGIA project, we have assumed a project IRR of 10.0%,

translating to equity IRR 24.4%, by discounting back the projected cashflow

at 10%, we estimate that the investment will yield an enhancement of

RM213.7m based on its 20% stake, translating to 19.4 sen per share.

Earnings forecasts. Maintained. Risks. These include: (1) Regulatory risks, particularly, inability to raise

airport charges; and (2) Traffic risk on economic downturn and outbreak of

pandemic diseases.

Investment Case. Following our incorporation of KLIA 2 and SGIAprojects, our indicative fair value is raised from RM5.96 to RM6.81 based on

sum of parts. Maintain Outperform.

Corporate High l ig hts

V i s i t No t e

Malaysia AirportsSabiha-Gokcen For Long-Term Prospects

Share Price : RM5.97Fair Value : RM6.81Recom : Outperform

(Maintained)

Issued Capital (m shares) 1,100.0

Market Cap(RMm) 6,567.0

Daily Trading Vol (m shs) 11.9

52wk Price Range (RM) 3.51 5.99

Major Shareholders: (% )

Khazanah Nasional 60.0

FYE Dec FY10 FY11 FY12

EPS Revision (%) - - -

Var to Cons (%) (9.3) (2.0) 18.5

PE Band Chart

Relative Performance To FBM KLCI

Joshua CY Ng(603) 92802151

[email protected]

22 October 2010

RHB ResearchInstitute Sdn BhdA member of theRHB Banking GroupCompany No: 233327 -M

Please read important disclosures at the end of this report.

Malasia

MARKET

DATELINE

PP

7767/09/2011(028730)

MAHB

FBM KLCI

PER = 20x

PER = 15xPER = 10x


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Key Takeaways

Brief recap. A consortium consisting of Limak Holdings (LIMAK), GMR Infrastructure Limited (GMR), and MAHBhad acquired the concession right to operate and manage Sabiha Gokcen International Airport (SGIA). The

terminal commenced operations in Nov 2009.

Highlights. Key takeaways during our recent visit to Sabiha Gocken International Airport (SGIA) are:1. In the near term, SGIA will not significantly contribute to MAHBs earnings as it expects a period of

gestation of seven to eight years. Nonetheless, management is optimistic in the long-term terminal given

its high growth potential.

2. SGIA is poised to register strong traffic growth going forward mainly due to: 1) Spillovers of capacityconstraints in Ataturk International Airport (AIA) in tandem with growing passenger traffic; 2)

Geographical advantages (areas adjacent are mainly industrial and residential areas with estimated 20m

population); and 3) Increasing connectivity by fast-growing airlines i.e. Pegasus Airlines, Anadolu Jet and

SunExpress (Turkish Airlines-Lufthansa). Already, SGIA was Euros fastest growing airport in 2002-2008.

Table 2: Details Of Sabiha Gokcen International Airport

1. Concession period 20 years (until 2028)2. Concession fee EUR1.9bn to be paid in 20 years, with no fee payable within the first three years3. Project costs EUR450.8m4. Finance Equity EUR115.0m (25%), Debt EUR336.0m (75%)5. MAHBs equity EUR22.97m/RM114.96. MAHBs stake 20% (GMR 40% and Limak 40%)7. Operational rights Terminal buildings, car parks, ground handling, cargo, aircraft refueling operations, construction

of the operation of the new terminal building, hotel and etc

Source: Company

One for the future. According to management, SGIA will not significantly contribute to MAHB earnings in theshort term as it expects a seven to eight years gestation period. However, management is optimistic on the

development of SGIA given its high growth potential. While currently only 20% of passenger traffic in Istanbul is

from SGIA, management expects this to increase to 45% within the next couple of years.

Chart 1: Total Passenger Traffic Fore cast, SGIA

0

5

10

15

20

25

30

35

2008 2009 2010f 2011f 2012f 2013f 2014f 2015f 2016f

Source: Company


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One airports loss is another airports gain. Currently, there are two airports in Istanbul, SGIA and AtaturkInternational Airport (AIA) of which SGIA rests on the Asian side while AIA is located in the European side. While

currently AIA is considered to be the main airport of Istanbul, AIA is facing capacity constraints and is estimated

to have exceeded capacity by 40%. Also, we note that constraints are further exacerbated by the lack of space

surrounding the terminal. Therefore, we believe this provides SGIA with the opportunity to capture AIAs spillover

passengers. Already, it has shown significant increase in passenger numbers i.e. Jan-Sep 2010 registered 88.8%

yoy growth of total passenger number (see Chart 6). In addition, SGIA is expected to handle a capacity of 35-

40m towards the end of the concession period.

Chart 2: Domestic Passenger Traffic, SGIA Chart 3: Domestic Passenger Traffic, AIA

-

500,000

1,000 ,000

1,500 ,000

2,000,000

2,500,000

3,000,000

3,500,000

4,000,000

4,500,000

5,000,000

2006 2007 2008 2009

0.0%

50.0%

100.0%

150.0%

200.0%

250.0%

300.0%

Do mestic Yo Y

-

2,000,000

4,000,000

6,000,000

8,000,000

10,000,000

12,000,000

14,000,000

2006 2007 2008 2009

-5.0%

0.0%

5.0%

10.0%

15.0%

20.0%

25.0%

Domestic Yo Y

Chart 4: International Passenger Traffic, SGIA Chart 5: International Passenger Traffic, AIA

-

500,000

1,000 ,000

1,500 ,000

2,000,000

2,500,000

2004 2005 2006 2007 2008 2009

0.0%

20.0%

40.0%

60.0%

80.0%

100.0%

120.0%

Int ernat io nal Yo Y

-

2,000,000

4,000,000

6,000,000

8,000,00010,000,000

12,000,000

14,000,000

16,000,000

18,000,000

20,000,000

2004 2005 2006 2007 2008 2009

0.0%

5.0%

10.0%

15.0%

20.0%

25.0%

30.0%

Int ernat io nal Yo Y

Source: DHMI


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Chart 6: Total Passenger Traffic Jan-Sep 2010, SGIA Chart 7: Number Of Flight Destinations, SGIA

4,545,224

8,583,397

88.8%

2009* 2010*

9

19

2726

52

66

2008 2009 2010*

D omest ic In te rnat ional

*Jan-Sep

Source: Company

Geographical advantages. In the same vein, we note that the Asian side of Istanbul is located in the industrialand residential areas i.e. Bursa, Gebze, Izmit, Sakarya, Yalova and the Istanbul Anatolian side. The areas are

estimated to have 20m population while AIAs location caters to only around 3% of the Istanbuls total

population. In addition, despite AIAs distance being closer to city centre vis--vis SGIA, we highlight that the

route to and fro AIA is typically congested. We believe this would give SGIA advantage in relation to airport

choice.

Table 3: SGIA vs. AIA

SGIA AIA

1. Capacity 25m passenger capacity (capacityexpansion to 35-40 passengers by 2028)

30m passenger capacity (limited by space)

2. Location Pendik, Asian side Yesilkoy, European side3. Distance from city centre 35km 24km

Source: Company

SGIA the gateway for future prospects. Given the success in completing the terminal well within its expectedtime of 18 months vs. estimated 24-30 months, we believe this could potentially boost MAHBs reputation and

open to further opportunities going forward. Note currently there are about 50 terminals in Turkey which provides

MAHB with ample opportunities.

Growing destinations on the back of low-cost carriers. SGIA is the hub for fast-growing low-cost carriersi.e. Pegasus Airlines, Anadolu Jet and SunExpress. We believe the surge in passenger traffic is a testimony to the

growing demand for budget flights. Already, SGIA has increased its international destinations (see Chart 7).

Incorporating KLIA 2 and SGIA into our fair value. We are taking the opportunity to incorporate the KLIA 2and SGIA projects into our fair value.

1. For the KLIA 2 project, we have assumed a project internal rate of return (IRR) of 8.0%, which impliesan equity IRR 17.9% (based on 70:30 debt-to-equity, 5.0% costs of debt and 25% tax). Discounting

back the projected cashflow at 10%, we estimate that MAHB will yield an enhancement of RM716.3m,

translating to 65.1 sen per share.

2. On the other hand, for the SGIA project we have assumed a project IRR of 10.0%, translating to equityIRR 24.4% (based on 75:25 debt-to-equity, 6.5% cost of debt and 20% tax), by discounting back the

projected cashflow at 10%, we estimate that the investment will yield an enhancement of RM213.7m

based on its 20% stake, translating to 19.4 sen per share.


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Image 1: SGIA Terminal Image 2: Outlets

Image 3: Departure Gate Image 4: Check-In Counters

Risks to our view. These include: (1) Regulatory risks, particularly, inability to raise airport charges; and (2)Traffic risk on economic downturn and outbreak of pandemic diseases.

Earnings Forecasts

Forecast. Maintained.Valuation and Recommendation

Investment Case. Following the incorporation of KLIA 2 and SGIA projects, our indicative fair value is raised fromRM5.96 to RM6.81 based on sum of parts (see Table 4). We are positive on MAHB as: 1) It is an excellent proxy

to the booming air travel sector in the region; and 2) It allows investors to piggy-back on Air Asias air passenger

growth. Maintain Outperform.


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Table 4: Sum-Of-Parts Valuation

Segment RMm RM/share Basis

Malaysian Operations (ex. KLIA 2 and

SGIA)

6,556.8 5.96 16x FY11 EPS of 37.3sens

KLIA 2 716.3 0.65 Enhancement based on project value of RM2.5bn, project IRR of8.0%, tax rate 25%, discount rate of 10% and costs of debt of 5.0%

SGIA 213.7 0.19 Enhancement base on project value of RM2.2bn, project IRR of 10,

tax rate of 20%, discount rate of 10% and costs of debt 6.5%.

Total 7,486.8 6.81

Table 5: Earnings Forecasts Table 6: Forecast Assumptions

FYE Dec (RMm) FY09a FY10f FY11f FY12f FYE Dec FY10f FY11f FY12f

Revenue 1,637.1 1,822.7 2,001.4 2,159.2 Passenger volume (m)

Growth (%) 14.1 11.3 9.8 7.9 International 27.0 29.9 32.0

Domestic 31.0 33.3 35.8

EBITDA 642.5 726.0 792.9 852.8EBITDA margin (%) 39.2 39.8 39.6 39.5 PSC ex-KLIA

- International (RM) 51 51 51Depreciation &amortisation (150.5) (162.8) (172.1) (180.9)

- Domestic (RM)9 9 9

EBIT 492.0 563.2 620.9 671.8

EBIT margin (%) 30.1 30.9 31.0 31.1 PSC at LCCT

- International (RM) 25 25 25

Finance costs (14.2) (16.9) (9.1) (0.4) - Domestic (RM) 6 6 6

JV 0.0 0.0 0.0 0.0 Source: Company data, RHBRI estimates

Associate 2.6 (80.0) (60.0) (20.0)Pretax profit 480.4 466.3 551.8 651.4Pretax margin (%) 29.3 25.6 27.6 30.2

Tax expense (100.2) (136.6) (140.7) (154.4)Profit from continuingoperations 380.3 329.7 411.1 497.0Discontinuedoperations (1.4) 0.0 0.0 0.0Minority interests (0.7) (0.3) (1.2) (1.5)

Net profit 378.3 329.4 409.8 495.5

Net profit margin (%) 23.1 18.1 20.5 22.9

Source: Company data, RHBRI estimates

IMP ORTANT DISCLOSURES

This report has been prepared by RHB Research Institute Sdn Bhd (RHBRI) and is for private circulation only to clients of RHBRI and RHB Investment Bank Berhad(previously known as RHB Sakura Merchant Bankers Berhad). It is for distribution only under such circumstances as may be permitted by applicable law. The opinionsand information contained herein are based on generally available data believed to be reliable and are subject to change wi thout notice, and may differ or be contrary toopinions expressed by other business units within the RHB Group as a result of using different assumptions and criteria. This report is not to be construed as an offer,invitation or solicitation to buy or sell the securities covered herein. RHBRI does not warrant the accuracy of anything stated herein in any manner whatsoever and no

reliance upon such statement by anyone shall give rise to any claim whatsoever against RHBRI. RHBRI and/or its associated persons may from time to time have aninterest in the securities mentioned by this report.

This report does not provide individually tailored investment advice. It has been prepared without regard to the individual financial circumstances and objectives ofpersons who receive it. The securities discussed in this report may not be suitable for all investors. RHBRI recommends that investors independently evaluate particularinvestments and strategies, and encourages investors to seek the advice of a financial adviser. The appropriateness of a particular investment or strategy will dependon an investors individual circumstances and objectives. Neither RHBRI, RHB Group nor any of its affiliates, employees or agents accepts any liability for any loss ordamage arising out of the use of all or any part of this report.

RHBRI and the Connected Persons (the RHB Group) are engaged in securities trading, securities brokerage, banking and financing activities as well as providinginvestment banking and financial advisory services. In the ordinary course of its trading, brokerage, banking and financing activities, any member of the RHB Groupmay at any time hold positions, and may trade or otherwise effect transactions, for i ts own account or the accoun ts of customers, in debt or equity securities or loans ofany company that may be involved in this transaction.

Connected Persons means any holding company of RHBRI, the subsidiaries and subsidiary undertaking of such a holding company and the respective directors,officers, employees and agents of each of them. Investors should assume that the Connected Persons are seeking or will seek investment banking or other servicesfrom the companies in which the securities have been discussed/covered by RHBRI in this report or in RHBRIs previous reports.


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A comprehensive range of market research reports by award-winning economists and analysts are exclusivelyil bl f d l d f h b i t

This report has been prepared by the research personnel of RHBRI. Facts and views presented in this report have not been reviewed by, and may not reflectinformation known to, professionals in other business areas of the Connected Persons, including investment banking personnel.

The research analysts, economists or research associates principally responsible for the preparation of this research report have received compensation based uponvarious factors, including quality of research, investor client feedback, stock picking, competitive factors and firm revenues.

The recommendation framework for stocks and sectors are as follows : -

Stock Ratings

Outperform = The stock return is expected to exceed the FBM KLCI benchmark by greater than five percentage points over the next 6-12 months.

Trading Buy = Short-term positive development on the stock that could lead to a re-rating in the share price and translate into an absolute return of 15% or more overa period of three months, but fundamentals are not strong enough to warrant an Outperform call. It is generally for investors who are willing to take on higher risks.

Market Perform = The stock return is expected to be in line with the FBM KLCI benchmark (+/- five percentage points) over the next 6-12 months.

Underperform = The stock return is expected to underperform the FBM KLCI benchmark by more than five percentage points over the next 6-12 months.

Industry/Sector Ratings

Overweight = Industry expected to outperform the FBM KLCI benchmark, weighted by market capitalisation, over the next 6-12 months.

Neutral = Industry expected to perform in line with the FBM KLCI benchmark, weighted by market capitalisation, over the next 6-12 months.

Underweight = Industry expected to underperform the FBM KLCI benchmark, weighted by market capitalisation, over the next 6-12 months.

RHBRI is a participant of the CMDF-Bursa Research Scheme and will receive compensation for the participation. Additional information on recommended securities,subject to the duties of confidentiality, will be made available upon request.

This report may not be reproduced or redistributed, in whole or in part, without the written permission of RHBRI and RHBRI accepts no liability whatsoever for theactions of third parties in this respect.

malaysia airports holdings berhad : sabiha-gokcen for long-term prospects - 22/10/2010

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