This article first appeared in The Edge Financial Daily on February 23, 2018
KUALA LUMPUR: A disappointing set of financial results has capped the rebound in the price of Malaysia Airports Holdings Bhd (MAHB) shares, which are trading at forward price-earnings ratio of over 34.2 times.
Despite the big leap in its annual net profit, the airport operator’s earnings for the financial year ended Dec 31, 2017 (FY17) missed analysts’ forecasts. Consequently, selling pressure has resurfaced, pulling the stock down by 13 sen, or 1.5%, to close at RM8.76 yesterday, with 5.26 million shares done.
MAHB’s FY17 core net profit was 33% below CIMB Research’s forecast, while 11% below Affin Hwang Capital Research’s estimate. As for MIDF, the research outfit said MAHB’s earnings had “accounted for 71% and 83% of its and consensus expectations respectively,”
CIMB maintains “reduce” on the stock with a lower target price (TP) of RM7.16, the lowest among Bloomberg’s consensus. Affin Hwang Capital, on the other hand, maintains “hold” with a slightly higher TP of RM9.
MIDF maintains its “buy” call on the stock with a TP of RM9.80.
MAHB’s net profit fell 16.4% to RM27.86 million from RM33.32 million previously, dragged down by higher total costs due to an increase in amortisation and depreciation. However, its quarterly revenue grew 15.44% to RM1.25 billion from RM1.08 billion in the previous corresponding quarter.
For its full FY17, MAHB’s net profit more than tripled to RM236.49 million against RM70.39 million in FY16, mainly thanks to higher revenue despite a 6.8% increase in costs.
It also proposed a final dividend of eight sen per share for FY17.
MIDF noted that despite falling short of estimates, the group’s performance showed strong improvement in FY17. Nonetheless, the research outfit tweaked its forecasts downward.
“Given the results came in below our expectations, we adjust our earnings forecast downward for FY18 and FY19 by 22.6% and 14.8% respectively. This adjustment is also taking into account the higher planned capex (capital expenditure) for the next two to three years,” said MIDF in the results review.
Meanwhile, Affin Hwang Capital’s senior associate director Loong Chee Wei said in a note that he was surprised by the higher interest expense with the increase in debt.
On the introduction of the aeronautical charges framework, Loong said the uncertainties on this would dampen sentiments towards the stock moving forward.
To recap, the Malaysian Aviation Commission (Mavcom) intends to begin a gradual rollout of the Quality of Service (QoS) framework from July this year, as well as the Regulatory Asset Base (RAB) framework for aeronautical tariff determination which is scheduled for implementation in 2020.
While MAHB expects capex of about RM600 million to RM700 million in 2018 to upgrade its airports in preparation for the proposed changes, additional costs are expected to be incurred, said analysts.
“We expect MAHB to incur a replacement capex at KLIA, in particular for its aerotrain and baggage handling systems, in order to avoid QoS-related penalties of up to 5.03% of its aero revenue,” CIMB’s analyst Raymond Yap said in a note.
As such the RAB framework may cap long-term returns for MAHB, said CIMB, as its fundamental aim is to ensure that the airport’s return on invested capital matches its weighted average cost of capital (WACC).
The RAB framework hopes to achieve this by ensuring that aero tariffs are set with respect to forecasted passenger traffic growth and expectation of growth of non-aero revenues over the regulatory period of three years, said Yap.
This would ensure that total revenues will exceed operating expenditure and depreciation costs by a margin that will ensure full coverage of WACC, he added.