By UOB Kay Hian
Target price: RM6.50
WE believe the growth of Malaysia Airports Holdings (MAHB) will be driven by stronger rental revenue in 2013 with the completion of Kuala Lumpur International Airport 2 (KLIA2).
In addition, increasing visibility on MAHB’s landbank development potential combined with its defensive qualities make this stock more appealing.
MAHB is entering a new growth phase.
We expect MAHB to achieve earnings per share (EPS) growth of 12.3% this year, and subsequently grow at a healthy three-year compound annual growth rate (CAGR) of 13.2%.
The new RM3.9bil low cost carrier terminal, also known as KLIA2, should commence operations in April 2013.
Most importantly, KLIA and KLIA2 will have a combined capacity of 70 million pax per annum (25 million per annum from KLIA, 45 million per annum from KLIA2) and a net leasable area (NLA) of 700,000 sq ft, which would contribute about 26% of total revenue and 43.8% of earnings before interest and taxes (EBIT) in 2013.
The industry fundamentals are also in favour as Malaysia’s tourism is growing at a commendable rate.
Tourist arrivals grew 7.3% in 2009, and at a CAGR of 12% for the past 10 years.
As a growing low-cost carrier hub, Malaysia has an estimated domestic growth of 5.5%.
Furthermore, the recovery in airline passenger volumes is also supportive of international passenger growth.
We expect passenger traffic to grow 9% to 11% in 2012 to 2014, driven by exposure to traffic across the Asean region.
Meanwhile, there is implied land value that is totally unaccounted for as MAHB has about 16,500 acres of land available for development at KLIA, which was previously lying dormant and mostly utilised for oil palm plantation.
We gather that 2,750 acres have been identified for initial commercial development over the next five years.
We think this should be the re-rating catalyst for the stock over the next two years, especially after the completion of KLIA2.
Even if we only value the 2,750 acres of land based on potential lease income shared with the Government, we estimate the landbank’s net present value (NPV) to be around RM427mil, or about 6% of MAHB’s current market capitalisation.
To put that into perspective, if the option value is subtracted from MAHB’s market capitalisation, it would imply that the market is only assigning a value of RM5.41 per share, or 15 times 2013 earnings for the airport business (and the Malaysian airport business is as good as a monopoly).
There is also the factor of MAHB’s investment in Turkey.
MAHB has a 20% equity stake in Sabiha Gokcen International Airport (SGIA), Turkey which costs RM114.9mil.
Thus far, it has been making losses and the investment has been fully written off from MAHB’s book.
Excluding the fair value accounting, the operational loss is about RM20mil per year.
Based on our estimates, if the Turkey airport begins contributing before 2016, the NPV enhancement to the total sum-of-the parts (SOTP) could potentially increase from 14 sen to 25 sen per share.
We believe the downside of