KUALA LUMPUR: klia2 in Sepang, which opened in May, failed to give Malaysia Airport Holdings Bhd (MAHB) an instant boost in earnings as expected, as the airport operator saw its net profit plunge 98.6% in the third quarter ended Sept 30 of financial year 2014 (3QFY14) to RM1.61 million from RM112.78 million a year ago.

MAHB said the steep profit decline in 3QFY14 — in which it began realising the full impact from klia2’s operations — was mainly due to higher costs incurred by the new low-cost carrier terminal, as well as higher financing costs on borrowings incurred for the construction of the terminal.

Revenue for 3QFY14 also declined 30.5% to RM675.76 million from RM972.7 million a year ago.

This is despite a 9.7% increase in tourist arrivals from January to July 2014 to 16.1 million from 14.5 million in the same period last year, with July alone registering 2.23 million arrivals, according to Tourism Malaysia data.

Still, an analyst who declined to be named, said MAHB’s poor quarterly results were “not unexpected”, adding that the group has been recording low profits for its past two quarters, and that the higher costs incurred by klia2 have further exacerbated matters.

“Its (MAHB’s) operating costs went up. For instance, the staff cost went up because the place (klia2) is bigger and needs more staff. Utility costs such as electricity also rose,” he told The Edge Financial Daily yesterday.

However, the analyst is optimistic about the airport operator’s outlook in 4QFY14 as the year-end is traditionally the peak travel period and will be a boon for MAHB’s earnings.

In a filing with Bursa Malaysia yesterday, MAHB attributed the significantly weaker 3QFY14 results to higher operating costs, higher depreciation and amortisation, as well as a higher share of losses from jointly-controlled entities (JCE) such as the Istanbul Sabiha Gokcen International Airport and LGM Airport Operations Trade and Tourism Inc.

MAHB said it registered higher depreciation and amortisation costs, a jump of 85.78% to RM137.03 million versus RM73.76 million last year, due to the completion of klia2.

On top of expenses related to klia2, MAHB also had suffered higher employee benefit expenses of RM168.31 million compared with RM129.96 million a year ago due to annual increments and additional recruitments.

MAHB pointed out there was no construction revenue recognised in 3QFY14, following the completion of klia2 and the expansion of the Penang International Airport in May 2014 and June 2013 respectively, compared with RM357.3 million in the corresponding period last year.

“If the construction revenue [for 3QFY13] is excluded, the consolidated revenue [for 3QFY14] was 9.8% or RM60.3 million higher than in the same corresponding period last year,” MAHB said.

For the nine-month period of financial year 2014 (9MFY14), the airport operator’s net profit stood at RM85.64 million, down 74.9% from RM340.6 million a year ago, while revenue fell 11.6% to RM2.63 billion from RM2.98 billion.

MAHB said its full-year growth prospects are expected to remain softer than actual traffic growth to date, but gave assurance that it is on track to achieve full-year traffic numbers of over 83 million passengers despite the recent setbacks in the aviation industry.

“The Malaysia Year of Festivals campaign in 2015 is expected to enhance the growth prospects for MAHB. klia2’s position as another flagship international gateway to Malaysia is vital in supporting the campaign,” it added.

MAHB’s share price closed up 0.14% to RM7.23, giving it a market capitalisation of RM9.94 billion.

This article first appeared in The Edge Financial Daily, on November 4, 2014.