KUALA LUMPUR (Aug 11): Malaysia Airports Holdings Bhd (MAHB) and AirAsia Bhd extended losses this morning after the relationship of the airports operator and the low-cost carrier deteriorated.

MAHB fell as much as 2.75% or 14 sen to RM4.95 in the morning session.

At 12.30pm, MAHB (fundamental: 0.8; valuation: 2) pared some losses to trade at RM5.00, down 1.77% or 9 sen, with 1.56 million shares done, giving it a market capitalisation of RM8.3 billion.  

In a note dated Aug 9, CIMB Research had suggested investors to stay on the sidelines as the risks were rising from klia2, following AirAsia (fundamental: 0.2; valuation: 1.4)'s RM409 million letter of demand on MAHB for damages relating to klia2 operations.

"The facts of the case as alleged by AirAsia appear to be genuine, and the details make us extremely concerned about what now looks like a very troubled future for klia2," it said.

CIMB Research said the implication is that repair costs will be elevated for many years ahead, hurting MAHB's already weakened cash flows.

"This is why we have cut our earnings (FY15–17) by 4% and lowered our discounted cash flow (DCF)-based target price, maintaining the 'hold' call," it said, adding that the target price has been lowered from RM6 to RM5.43.

Meanwhile, shares of AirAsia fell as much as 3.08% or 4 sen to RM1.26 in active trade today.

At 12.30pm, the counter pared some losses to trade at RM1.27, down 3 sen or 2.31%, with 14.04 million shares changing hands, giving it a market capitalisation of RM3.53 billion.

In the cover story by digitaledge Weekly Aug 10-16, it said AirAsia's decision to demand RM409 million in damages from MAHB has shocked the industry.

The weekly also said such a move will "dash hopes" of the budget airline and MAHB coming together to address the problem of soil depression at klia2.

The cover story also pointed out the interdependent relationship between MAHB and AirAsia.

It said AirAsia had support from the government through MAHB and the two industry leaders have grown together over the years.

On the other hand, with Malaysian Airlines Bhd cutting its international routes and capacity, MAHB's financial performance is even more dependent on the low-cost carrier, which in turn needs all the support it can get from the airport operator in order to maintain a smooth and efficient operation.

Quoting aviation expert Syukor Yusof, the weekly said the Ministry of Transport may need to intervene and mediate between the two parties as the soil issues have gone on for far too long.

"It has not only hurt AirAsia and MAHB but the Malaysian aviation industry as a whole," he said.

(Note: The Edge Research's fundamental score reflects a company’s profitability and balance sheet strength, calculated based on historical numbers. The valuation score determines if a stock is attractively valued or not, also based on historical numbers. A score of 3 suggests strong fundamentals and attractive valuations.)