Opening of klia2 to be delayed

Malaysia Airports Holdings Bhd

(May 8, RM6.20)

Downgrade to hold at RM6.41 with a target price of RM6.60:

MAHB has announced that some of its contractors will be unable to meet this year’s June 28 opening deadline. No details on a revised completion time and cost overruns were provided. This announcement is not a surprise, and we think the market has already priced in this risk.

We maintain our earnings forecasts and RM6.60 discounted cash flow (DCF) based target price. The stock is, however, downgraded to a “hold” (from “buy”) for its narrowed 3% upside to our target price.

Mammoth projects such as klia2 often encounter unforeseen challenges and delays are normal. During our last airport visit, we noticed some minor construction but we don’t think that is a major concern. We are more concerned about the time required to conduct the operational readiness and airport transfer process which can take four to six months. Therefore, we think klia2 might open between October and December this year.  AirAsia was somewhat right in expecting a delay and not making any arrangements to move to klia2 this year.

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