Malaysia Airports profits up but underlying statistics cause concern as MAS shares fall


Malaysia Airports Berhad (MAHB) has reported its financial highlights for the three months ended 31-Mar-2011. Net profit was up by 20% but EBITDA and the EBITDA margin were down. Revenues per passenger movement and per aircraft movement also fell. There is still strong growth in the low-cost segment but MAS, having turned its financial woes around in 2010, has recently reported a poor first quarter.

Table 1. Malaysia Airports Berhad financial highlights for the three months ended
31-Mar-2011. (All figures USD except where stated)

Measure  USD
Variation %
Revenue 202.8m +22.4
Airport operations 192.0m +22.7
(Airport services) 164.6m +22.2
(Retail) 37.9m +13.5
EBITDA 63.1m -0.4
(Airport operations) 67.9m -2.9
EBITDA Margin (airport ops) 35.39% -9.32 ppts
Profit before tax 44.2m +11.1
Airport operations 56.9m -0.3
(Airport services) 43.9m -5.9
(Retail) 2.7m +176.1
Net profit 29.3m +20.6
Gearing (group) 78.53% +57.5 ppts
Airport rev per pax movement 9.79 -7.5
Aero rev per pax movement 4.52 -10.9
Non-aero rev per pax movement 4.82 -4.2
Aero rev per aircraft movement 445.21 -8.6
Passenger numbers 15.1 million +11.9
(Kuala Lumpur) 8.9 million +12.4
(Main terminal building) 4.7 million +6.7
(LCT) 4.2 million +19.6
Aircraft movements 152,700 +9.2

Strong passenger demand despite adverse world events

Strong demand despite the Japanese earthquake and tensions in the Middle East and North Africa improved Malaysia Airports (MAHB) net result in 1Q2011 to MYR88 million (USD29.3 million), up 20% for the same quarter in 2010. The Malaysian Airports operator reported a 22% revenue increase, but EBITDA was down slightly and the EBITDA margin on airport operations fell by 9.32 ppts.

Kuala Lumpur International Airport (KLIA) still dominates the landscape, accounting for 59% of MAHB traffic. In total MAHB manages 39 airports, (five international, 16 domestic and 18 short take-off and landing airports) including significant ones such as Penang and Kota Kinabulu, in addition to its investments and management interests at airports in India, Turkey, Kazakhstan and the Maldives.

First quarter passenger traffic was up by 11.9%, with 15.1 million passengers passing through MAHB's 39 airports. Low-cost carrier terminal (LCCT) passenger traffic at KLIA rose by 20%, almost three times as fast as at the main terminal building.

Statistics justify LCCT decision

These statistics serve to justify MAHB’s decision to build a replacement LCCT as the present one has out-performed Singapore’s LCCT, which opened at the same time four years ago and which has exceeded its design parameters. In May-2011, MAHB announced the new permanent LCCT, known as KLIA2, will be open for traffic in Oct-2012. The USD675 million, 242,000sqm facility is designed to be expanded to handle up to 30 million or even 45 million passengers annually, which is considerably more than the airport’s entire annual throughput now (25 million). In addition, a multi-modal transportation hub is being constructed for buses, taxis and the Express rail link. MAHB is yet to tender out a number of projects, including the construction of a new runway at the airport.

MAHB’s managing director Tan Sri Bashir Ahmad Abdul Majid said: “What is important for us right now is to get it done well. It's a very big project. Of course, as you can see there are delays here and there but we will manage that. At the end of the day, we will make sure that it gets done well." Several packages are yet to be tendered out for the project, reportedly including for the construction of a new runway. MAHB also stated it would be announcing “very soon” whether aerobridges would be constructed at KLIA2. The issue of aerobridges at new terminals which are dominated by LCCs recently came to a head at Alicante, Spain, where Ryanair has threatened to axe most of its services if the airport operator (AENA) does not relent. MAHB will undoubtedly be aware of the situation.

Gearing up

One noticeable statistic is that both aero and non-aero revenue per passenger movement went into reversal in the quarter, despite the across-the-board increases in revenues and passenger numbers. Another is that gearing increased by 57.5 ppts.

The proportionality of income streams did not vary considerably between 1Q2011 and the p-c-p except that income from aeronautical services increased proportionately to the decline of non-aero revenues (including retail) by approximately 10ppts. MAHB has for several years emphasised the need to develop non-aeronautical revenues but (and as Table 1 confirms) they are not increasing to the same extent as aeronautical revenues right now. MAHB also has an interesting sideline revenue stream which is described as "agriculture and horticulture" (2%).

On the cost side of the equation, staff costs rose by 6.75% and some direct overheads by almost 47%.

The announcement came as local markets were reacting badly to a poor financial showing in 1Q2011 from Malaysia Airlines (MAS), whose shares fell in the immediate aftermath to a new decade low. But that result followed a very positive one in FY2010 when the national carrier turned around a USD201 million loss to a USD86 million profit. The situation is also complicated by MAS’ move away from the MSCI Malaysia Index.

MAS has six A380s on order which are expected to serve mainly the KL-London and Amsterdam routes. Five of the six on order will be in service in 2012, with the final aircraft arriving in 2013.

In any case the real mover and shaker in the region is AirAsia, which turned in an operating profit of USD358 million in FY2010 (+59% and the fourth highest of an LCC, anywhere). The partly-held subsidiary AirAsia X also continues to grow though it may face a stiff challenge from Singapore Airlines’ proposed long-haul LCC. Both these AirAsia brands operate from the current KLIA LCCT, together with Thai AirAsia and Indonesia AirAsia, where they collectively dominate proceedings.

AirAsia’s market capitalisation is now almost 80% larger than that of MAS. Less than a year ago, AirAsia's market capitalisation reached parity with MAS for the first time.

Incentive scheme to reward airline passenger growth

MAHB is considering the introduction of an incentive programme from 01-Jan-2012, with the current scheme terminating at the end of 2011, and which rewards airlines for year-on-year passenger growth. This would be more in line with the kind of incentives other airports offer, according to MAHB’s CFO.

One good piece of news for MAHB is that passenger traffic for Apr-2011 improved by a greater amount than in 1Q2011; +16.3% for the whole organisation and +16% at KLIA, though statistics may have been skewed a little by the European ash cloud. But cargo volume fell by 6.1%.

Also Malaysia’s Transport Minister, Datuk Abdul Rahim Bakri, who is of the opinion that Malaysia's aviation industry is expected to undergo rapid growth and that KLIA will become an important air transport hub for Asia by 2020. The airport is expected to handle 67 million passengers by that date. Mr Bakri said the prediction is based on a 7% annual increase in operations, driven by LCCs and supported by the construction of Terminal 2. He noted that KLIA2 is one third complete.

Background information:

MAHB was incorporated as a public limited company in Nov-1999 and listed on the Main Board of the Kuala Lumpur Stock Exchange, becoming the first airport operating company to be listed in Asia and the sixth in the world.

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