By Stephanie Jacob
After four months of negative passenger growth, the 5.9% year-on-year improvement in May’s numbers would have come as a relief for Malaysia Airports Holdings Bhd. With the weakening ringgit, the airport operator will be hoping to be one of the few businesses to benefit from the depreciating ringgit.
Business model: Malaysia Airports Holdings Bhd (MAHB) is the largest airport operator in Malaysia. It operates 39 airports across the country, with Syed Mokhtar Albukhary’ Johor Bahru’s Senai airport and Petronas-run Kerteh airport being the only exceptions to its portfolio. MAHB also operates three international airports.
The company was formed in 1991 to take over the management of the local airports from the Department of Civil Aviation. MAHB holds a long-term concession from the government, until 2034 at least, for the Kuala Lumpur International Airport (KLIA). And in exchange, the government receives a portion of the revenue garnered.
Only 10 of the airports under MAHB are profit making. These profitable entities subsidise the other unprofitable airports, most of which are rural airstrips in East Malaysia which are operated as a public service. MAHB has said that it forgoes about 10% in net profit to subsidise these airports.
Internationally, MAHB has stakes in two Indian airports. It owns a 10% stake in Indira Gandhi airport in New Delhi and 11% stake in Rajiv Gandhi airport in Hyderabad.
In October 2014, MAHB exercised its right to take full control of Istanbul’s Sabiha Gökçen International Airport or ISG. The remaining 40% it did not own cost RM1.2 billion and the purchase was completed in January this year.
Shareholders and management assessment: MAHB is led by Badlisham Ghazali, who took over the reins from Bashir Abdul Majid in June 2014. Bashir had been at the helm for 11 years and remains an advisor to the company.
Before joining the airport operator, Badlisham was chief executive officer for the Multimedia Development Corp where he was credited with attracting billions of ringgit in investments for the Multimedia Super Corridor.
The airport operator remains a government-linked company, with Khazanah Nasional Bhd holding the largest stake with 36.65%. Permodalan Nasional Bhd holds about 18.9% and the Employees Provident Fund has an 11.84% stake. It has foreign shareholding of about 19%. These figures are based on MAHB’s Annual Report 2014.
Share performance: According to Bloomberg, MAHB has been trading in 52-week range of RM5.96 to RM8.18. The group has a market capitalisation of RM10.9 billion.
It has a one-year return rate of -15.60%, and therefore has underperformed the FBM KLCI which has a return rate of -5.15%. According to Reuters, the group has a beta coefficient of 1.13, and is therefore trading above the overall market volatility. A value of 1.0 reflects the average volatility of the stock market.
What analysts think: Reuters has compiled the calls of 21 analysts currently covering MAHB, out of which the overall consensus is “hold” with eight analysts taking this stance. Three analysts have a “buy” call and six others have an “outperform” call. Four analysts have an “underperform” call.
Earnings forecast:
StockStalk: Of late, analysts have generally been cautious on the airport operator’s prospects. MAHB’s first quarter for financial year 2015 saw a 75% fall in MAHB’s first quarter for 2015 net profit, and this did not help boost confidence.
With Malaysia Airlines likely to cut capacity (which will impact MAHB’s traffic), unexciting passenger growth forecasts and the high costs associated with klia2 and ISG, many are expecting 2015 to be a tough year for the airline operators.
Nonetheless, there appear to be some bright spots on the horizon. After four months of negative growth, monthly passenger numbers in May grew by 5.9%. Given that the market has seen nine months of slow growth, the jump in numbers was certainly a welcomed sight.
MIDF Research noted that importantly, the international sector is showing signs of improvement with a 2.1% year-on-year (y-o-y) growth in May after four consecutive months of negative growth.
Most surprising perhaps, was the China sector, which registered 15% y-o-y growth. The growth was likely spurred by pent up demand and the recent decision to waiver visa fees for Chinese tourists, said MIDF Research.
Passenger numbers at ISG have also improved. MIDF Research noted that ISG’s cumulative five-month growth is 18.3%, and has therefore surpassed MAHB’s own 2015 forecast of 15% y-o-y growth for ISG.
The other factor working in its favour is the weakening ringgit as foreign-exchange fluctuations always benefit some and hurt others. Luckily for MAHB, a weaker ringgit usually results in drawing in tourism to the country. Therefore MAHB is likely to be one of the lucky few which will benefit from the depreciating ringgit.
MAHB’s managing director Badlisham recently told The Edge: “The weakening ringgit continues to make Malaysia an attractive destination. The Japanese yen, Chinese yuan, Taiwan dollar, or British pound can go further in countries like Malaysia.”
“Our cost is already low and with the strengthening of foreign currencies, purchasing power is higher when they come. So that is what that would drive people to go out of their own country,” he said.
For better or worse, MAHB’s fortunes are often impacted by external factors. For example, in 2014, it too was impacted by the two Malaysia Airlines tragedies. However as the impact of those incidents fade, and coupled with the weakening ringgit, external factors could have a more positive impact on the airport operator in 2015.
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Important Note and Disclaimer: This article should NOT be taken as a cue to either buy or sell the stock. The intention is to highlight the key factors you might want to think about before plunging in or scrambling out. While KINIBIZ makes every endeavour to ensure facts are right and opinion is fair, no liability can be assumed for anyone relying on this information. In other words let the buyer (or seller) beware — a reflection of Bursa Malaysia, we say.
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