9 December 2011 Malaysia Airports Holdingsupload.xinhua08.com/2011/1209/1323414011445.pdf9 December 2011 Page 3 of 16 Malaysia Airports Holdings 17 October 2011 Page 1 of 2 Key changes

Kim Eng Hong Kong is a subsid iary of Malayan B anking B erhad

SEE APPENDIX 2 FOR IMPORTANT DISCLOSURES AND ANALYST CERTIFICATIONS

Malaysia

17 October 2011

PP16832/01/2012 (029059)

Company Update 9 December 2011

PP16832/01/2012 (029059)

Page 1 of 2

Malaysia Airports Holdings KLIA2 revisited

Project is viable. We conclude that the revised KLIA2 project is viable

with IRR of 12.2%-13.1% based on MAHB’s revised capex cost of

RM3.6b-3.9b. The new IRR is slightly lower than our estimate of 14.1%

at RM2.5b capex with more amenities and automation added into the

terminal. But we believe this is an infrastructure that will serve the

needs of the industry for decades to come. We maintain our BUY

recommendation, with a lower DCF-based target price of RM7.00/share

(from RM7.55) due to the initial cashflow burden impact.

Some make sense, some do not. We concur with MAHB’s idea for a

bigger terminal capacity of 45m per annum as we think it will reach this

full capacity within 9-13 years. We however think MAHB should partially

(instead of fully) equip the terminal with aerobridges given AirAsia’s

insistence of not using them. The plan to expand the new runway to

3,960m is unnecessary, in our view, as a 3,000m runway would suffice.

MAHB needs capital. MAHB will need to raise RM250m-550m of

equity based capital based on the higher project cost of RM3.6-3.9b.

This is in addition to the RM600m sukuk facility which we believe will be

drawn down by end of 1Q 2012. Should this equity based capital be

raised via 100% new shares issuance, it translates to 3.9%-8.6% of the

current paid-up. But we think MAHB can easily mix with debt and

reduce the dilution effect of raising new equity.

MAHB must deliver this time. This is the fourth series of delays and

cost revision from the initial plan. We believe the cutoff point for the

project to be feasible is RM4.2b capex, and any cost overrun will render

the project no longer attractive with an IRR of <11%. Also, we think that

MAHB cannot afford for the project to be completed beyond mid-2013

as the cashflow burden will eat into its cash reserve.

Earnings lower due to higher terminal cost. We have revised our

2013 earnings by -33%. The 2013 number is materially lower due to the

initial depreciation and interest payments. We have imputed xx months

of KLIA2 being in operation in our 2013 forecast. We nevertheless

expect MAHB to maintain positive EBITDA growth in 2013 on the back

of its strong operational capabilities.

Malaysia Airports Holdings – Summary Earnings Table Source: Maybank IB FYE Dec (RM m) 2009A 2010A 2011F 2012F 2013F Revenue 1,609.6 1,812.9 2,038.2 2,215.6 2,519.8 EBITDA 614.6 706.9 795.3 922.1 972.9 Recurring Net Profit 350.4 378.1 476.1 550.8 272.6 Recurring Basic EPS (Sen) 31.9 34.4 43.3 49.0 24.3 EPS growth (%) 14.8 7.9 25.9 13.2 (50.5) DPS (Sen) 16.9 17.2 21.6 21.6 21.6 PER 16.9 16.9 13.4 11.6 23.4 EV/EBITDA (x) 10.8 10.4 10.2 10.7 9.9 Div Yield (%) 2.9 3.0 3.7 3.7 3.7 P/BV(x) 1.9 1.9 1.8 1.7 1.7 Net Gearing (x) 0.07 0.29 0.48 0.86 0.79 ROE (%) 10.8 8.9 14.0 14.9 7.0 ROA (%) 7.0 4.8 6.6 6.9 3.1

Consensus Net Profit (RM m) - - 390.0 430.5 382.2

Buy (unchanged)

Share price: RM5.80 Target price: RM7.00 (from RM7.55)

Wong Chew Hann, CA [email protected] (603) 2297 8686

Stock Information

Description: Licensed airport operator in Malaysia, India, Maldives and Turkey Ticker: MAHB MK

Shares Issued (m): 1,100.0 Market Cap (RM m): 6,380.0 3-mth Avg Daily Volume (m): 0.62 KLCI: 1,472.92

Free float (%): 28.75 Major Shareholders: % KHAZANAH 54.0

EPF 10.5 SKIM AMANAH SAHAM 6.8

Key Indicators

Net cash / (debt) (RM m): 993.7 NTA/shr (RM): 3.18

Net Gearing (x): 48.3

Historical Chart

Performance:

52-week High/Low RM7.02/RM4.5

1-mth 3-mth 6-mth 1-yr YTD

Absolute (%) (6.3) (7.2) (4.9) (6.8) (7.6)

Relative (%) (5.8) (5.6) (0.8) (4.3) (4.6)

TNB MK Equity

0

2

4

6

8

10

Apr

-08

Jul-0

8

Oct

-08

Jan-

09

Apr

-09

Jul-0

9

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9 December 2011 Page 2 of 16

Malaysia Airports Holdings 17 October 2011

Page 1 of 2

What’s the commotion between MAHB-AirAsia about?

Long time brewing. The recent public spats between MAHB and

AirAsia regarding KLIA2 was unfortunate. Each side have their version

of reality and what the KLIA2 project should be. We think it’s a battle of

perception rather than personal in nature. Fortunately, a truce has been

called and both sides have heeded as there is media silence on this

issue.

AirAsia’s view point

AirAsia is visibly upset with the incessant delays of KLIA2 completion

date because it impairs its ability to expand and has to defer its firm

aircraft orders. This will result in significant opportunity cost, and also

reputational damage to its vendors and head of states whom it has

promised to commence flights to their countries but only to cancel due

to LCCT constraints. For all its misery, AirAsia does not get any

compensation from MAHB.

Therefore, when the higher airport tax and aeronautical tariff was

ratified, AirAsia was very upset and responded in an effort to revoke the

higher charges. However, the authorities made it clear than the revised

tariffs are here to stay.

MAHB’s view point

KLIA2 is a very important investment for MAHB and it wants to ensure

that KLIA2 is built to the highest specification, remains relevant for a

long period of time, universally accepted by all airlines, and provides

attractive returns to its shareholders. Therefore, proper and diligent risk

mitigation strategies are put in place to ensure the project is a success

in all sorts of scenarios.

AirAsia, through its cloud as the anchor tenant, has demanded for a

basic and low cost design which fits its operational requirements

perfectly. However, should MAHB heed to all of AirAsia’s demands,

KLIA2 risks being a terminal suitable for a very limited number of airline.

MAHB does not want to limit its clientele base and wants to lower its

single client exposure risk. Therefore, it tries to balance out AirAsia’s

demands with the other airlines requirements wherever possible.

Understandably, not all demands can be met.



Page 1 of 2

Key changes to KLIA2

From ‘low cost’ to ‘normal’ terminal. The original plan was to make

KLIA2 a simple, hassle free and ultimately very low cost terminal to

operate from. However, step by step, it has morphed into a greater

functional terminal with higher comfort levels whilst maintaining an

efficient cost base. In other words, it is a commercially viable, full

service terminal like any other across the world. We itemise the key

changes and the impact to the project below:-

Key changes to KLIA2

Description Original (Feb’ 2009)

RM2.0 billion

Revised

RM3.6-3.9 billion

Increase in

Scope (%)

1. Terminal building 150,000m² (GFA) 257,000m² (GFA) +71%

2. Aircraft stands Area = 500,000m²

50 semi contact stands

Area = 803,709m²

68 gates, 8 remote stands

+61%

3. Earthworks 4.85 million m² 11.2 million m² +131%

4. Runway #3, taxiway & AGL system 2,500m x 45m (Code C) 3,960m x 60m (Code E) +65%

5. Upgrade ATC and public facilities Ground level control tower

8km ground roads

Full scale tower (93m height)

15km ground roads

significant

6. Aerobridges none 80 aerobridges -

Source: Company

Terminal building (+RM420m)

The terminal building will be significantly larger (+71%) in terms of floor

space than the original design in order to: (1) accommodate higher

passenger capacity of 45m versus 30m (+50% increase), (2) segregate

international and domestic passengers – previously, both sets of

passengers shared the same premise; and (3) facilitate a fully

automated baggage system – semi automatic earlier. This will increase

costs by RM420m to RM1,417m from RM997m earlier (+42% increase).

Schematic of the original and revised KLIA2 terminal design

Source: Company



Page 1 of 2

45m passenger growth forecast realistic. Looking at historical traffic

growth rates in the graph below, KLIA enjoyed a 10-year CAGR of 8.8%

whereas Malaysian air traffic grew by only 5.8%. MAHB has used an

average growth rate of 5.8% for KLIA2’s future growth projection which

means it will reach full capacity by 2026 – 13 years after

commissioning. We think this is a conservative projection as KLIA and

LCC air travel has proven to be very robust (achieving high growth

rates despite two major recessions in 2001-02 and 2008-09).

Historical growth rates at KLIA and Malaysia Projected passenger traffic and growth rate at KLIA2

Sources: Company, MMC, Maybank IB Source: Company

In the table below, we show when KLIA2 will reach full capacity of 45m

passengers p.a. relative to various traffic growth rate scenarios. We use

4.0% growth as the worst case scenario (reminiscent of a prolonged

recession period), MAHB’s base case of 5.8% growth and historical

growth rate of 8.8%. We think the odds are for growth rates to be 5.8%

and above, which suggests KLIA2 could reach full capacity within 9-13

years. The conclusion clearly suggests that KLIA2’s 45m capacity is

realistic and is not “too big” as initially feared.

KLIA2 full capacity forecast relative to growth rates

Average growth rate (%) 4.0%

(worst case)

5.8%

(base case)

8.8%

(historical rate)

Years to full capacity 18.0 12.6 8.5

Sources: Company, Maybank IB

Separation between domestic & international. We understand that

this was mooted out of security concerns. The Department of Civil

Aviation (DCA) and Immigration Department were not comfortable with

the original design whereby domestic and international passengers can

intermingle in the departure and arrival halls for fear of illegal foreigners

without documents leaching their way into the country via domestic

counters. This concern is understandable given the huge terminal

capacity.

Automatic baggage system. This change of plan was due to the

realisation that the manual baggage system is unable to handle the

massive 45m passenger capacity. In retrospect, it should have been a

fully automatic baggage system from the very start.

-5%

0%

5%

10%

15%

20%

25%

2000 2002 2004 2006 2008 2010

KLIA Malaysia Total

2224

2628

3032

3436 37

3941 42

4446

0%

2%

4%

6%

8%

10%

0

10

20

30

40

50

2013 2015 2017 2019 2021 2023 2025

million Passenger traffic (LHS) Growth rate (RHS)

2010:2000 CAGR

KLIA = 8.8%

Malaysia = 5.8% CAGR 5.8%



Page 1 of 2

Suspicious. We find it suspicious that MAHB is able to extend the

construction of the original terminal building which was a 2 level 2-

storey building into a 3 level 9-storey building without the need to

reinforce the building foundation. The foundation requirement for a 9-

storey versus 2-storey building is materially different and this change in

design suggests that the foundation laid on the original building was

always meant for a 9-storey building. The picture below shows KLIA2

with its foundation laid and erection works taking place. This picture

was taken in Jul 2011, four months before the anoouncement of a

change in design was made.

Overhead view of KLIA2

Sources: Wikipedia, Maybank IB

• Additional aircraft stands (+RM160m)

The total number of aircraft stands has increased to 76 from 50 (+52%).

We think this is a good idea as we envisage that AirAsia alone will

absorb 45-60 stands in the near future. AirAsia currently fully dominates

the 35 stands at the existing LCCT and has been complaining that it is

grossly insufficient. In adiition, AirAsia X with its fleet of widebody

Airbus A330 will need its fair share of parking stands.

We think these additional aircraft stands will go a long way towards

attracting airlines that currently are unable to go to the LCCT due to

insufficient gates and suitable slot times. For example, Jetstar Asia and

Lion Air (both are LCC) have chosen to serve from the main KLIA

terminal for the moment due to congestion issues at the LCCT.

• Additional earthworks (+RM670m)

This is the biggest bill for KLIA2’s addition in capex and it stems from

the additional ground works of +131% in ground area. This will result in

a materially larger working area for the airport. MAHB states that this

will be used to house aircraft maintenance hangars, cargo facilities and

airline offices (which includes AirAsia’s permanent headquarters). In

addition, there will be an integrated complex (for retail) adjoining to the

main terminal building (70:30 concession between WCT and MAHB).

Terminal Building

Runway C

Satellite

building

Runway B



Page 1 of 2

• Longer runway (+RM180m)

The new runway (runway C) will be lengthened and expanded to

3,960m and upgraded to a Code E runway – the highest grade that

allows all types of commercial aircraft to land, including an Airbus A380.

We are of the opinion that the runway C lengthening is redundant and

adds no value. Firstly, AirAsia fleet type only needs a runway length of

3,000m. Secondly, runway C is situated too far away from the main

terminal and satellite building (>3.0km) for any aircraft to make effective

use of it – it makes more sense for them to use runways A & B.

Pictorial schematics of KLIA

Sources: KLIA Master Plan, Maybank IB

• Public infrastructure and DCA facilities (+RM390m)

MAHB is also going to incur the cost of basic infrastructure (roads,

drainage and sewerage, etc) – originally under the Government’s

coffers. In addition, it will build a full scale control tower with upgraded

air traffic control systems. These are nessesarry measures to cope with

the massive capacity and to ensure smooth operations. MAHB states

that they will be able to recoup this cost by charging the Government

lease charges of RM10m-15m per year.

Aerobridges (+RM120m)

What’s the fuss about aerobridges? An aerobridge is an enclosed,

movable connector between the aircraft to the terminal building. The

first aerobridge was introduced back in 1959 in the USA. San Francisco

International was the first airport to install this machinery, and it is now

a standard equipment in every major airport across the world.

The objective of this machinery is to allow passengers to board and

disembark the aircraft without having to walk along the apron and be

exposed to the open environment. This is a much more comfortable

proposition as the passengers are not exposed to direct sunlight, rain

(or snow), extreme cold and noise from aircraft jetblast. In addition, it is

also highly beneficial for the disabled, infirm or pregnant mothers as

they do not need to climb on steep staircases into/out from the aircraft.

Picture of an aerobridge affixed to an aircraft

Future Satellite

Building

Runway C

Runway B

Runway A

2.2 km

>3.0 km

Current LCCT



Page 1 of 2

How much does it cost? It depends on the make and the functionality

of the aerobridge. There are models which are suitable for a specific

fleet, and these tend to be cheaper at around RM0.25m-0.5m each.

The versatile models which can work for almost all types of commercial

aircraft tend to be more expensive at around RM0.7m-1.5m. In KLIA2’s

case, MAHB has estimated a cost of RM120m for 80 aerobriges i.e.

RM1.5m per aerobridge which is at the high end of our estimate.

Cost analysis of an aerobridge. Aerobridges are sturdy machines that

can last as long as the terminal building itself if properly maintained. It is

relatively low maintainence with the occasional greasing, servicing and

change of its rubber liner cab (refer picture). The investment case for

aerobridges is in its utilisation rate – MAHB charges RM85 per use. The

left graph below shows the years to break-even relative to daily usage.

The right graph below shows the average usage rate at the KLIA main

terminal. We estimate the aerobridges at the KLIA main terminal

building took only 6 years to break even.

Payback period for aerobridge relative to usage per day KLIA main terminal aerobridge usage rate per day

Source: Maybank IB Source: Maybank IB

Are aerobridges worth the investment? MAHB must achieve an

average of >6 usage per day to achieve a decent payback period of

below 8 years. We think this may not be possible considering that

AirAsia Group will be the anchor tenant at KLIA2 with >50% market

share and they have vehemently voiced out against using it. As shown

on the right side graph above, the highest usage/day at the KLIA main

terminal was 10.9x in 2005 when it was at 92.8% operating capacity.

Without AirAsia’s support, the aerobridge project is likely to fail.

Why does AirAsia oppose the aerobridge? AirAsia is keen to

eliminate non-value add cost wherever possible. By not using

aerobridges and not incurring the RM85 charge, it can save

approximately RM4.0m/year for its LCCT operations alone. Secondly,

approximately 5 valuable minutes are saved for each turnaround as

passengers are able to embark and disembark from two exit points

(front and rear doors).

What we think about the aerobridge issue. We agree with MAHB’s

argument that aerobridges have a fundamental role at KLIA2. But we

also think that achieving decent utilisation rates should be the top

priority; therefore we think the best trade off is to reduce the number of

aerobridges by half, to 40. Airlines that want to use the aerobridge can

do so and those that do not, will also have an option to do so. This will

ensure a high utilisation rate for the installed aerobridges and provide

decent returns on the investment.

0

5

10

15

20

25

2 3 4 5 6 7 8 9

usage per day

Years to break-even

6

7

8

9

10

11

12

1998 2000 2002 2004 2006 2008 2010

Aerobridge usage per day

AirAsia moved to

LCCT in Mar 2006



Page 1 of 2

Financial viability of KLIA2

Basis of assumption. Our base case assumptions are: (1) project cost

of RM3.9b – the high end of MAHB’s forecast (RM2.5b was the base of

our assumption under the original KLIA2 plan); (2) capital structure of

90:10 debt:equity which requires MAHB to raise RM140m of new equity

@ 2.2% new equity assuming current market prices; (3) new airport

tariffs and PSC as announced by MAHB; (4) sukuks of RM600m raised

at a profit rate of 4.60% – 83bps premium to MGS, consistent with AAA

rating premium; (5) top-up loan of RM410m at 6.5% – current BLR rate;

and (6) project WACC of 5.4% (NOTE that this is the WAAC for KLIA2

project alone, it does not represent the WAAC of the whole company).

Results: 12.2% IRR (22-years) and RM7.6b NPV

Still feasible. Our analysis reveals that the project is viable at an

attractive 22-year IRR of 12.2% with a NPV of RM7.58b. This is lower

than our original forecast of an IRR of 13.2% with a NPV of RM6.08b.

More importantly, it will be cashflow positive from its first year of

operations with a projected EBITDA of RM266m and CFO of RM96m in

2013. This should allay fears of a cashflow drain on the parent as the

KLIA2 project would be self funding.

However, on a net income level, we estimate that KLIA2 will be loss-

making for the first three years of operation due to the high depreciation

effect (with the higher capex). This is normal for any capital intensive

project as the initial depreciation is high in relation to the lifespan of the

project.

Summary of LCCT Earnings Table

FYE Dec 2013* 2014 2015 2016 2017 2018 2019 2020 2021 2022

RM million unless otherwise stated Aeronautical revenue 263 432 472 508 546 587 716 764 787 824

Non-aeronautical revenue 312 366 395 445 455 465 475 486 496 507

Retail revenue (Eraman) 203 297 327 357 389 424 463 501 525 558

Total Revenue 778 1,095 1,194 1,309 1,389 1,476 1,654 1,751 1,808 1,889

Revenue growth - 41% 9% 10% 6% 6% 12% 6% 3% 4%

Operational cost (513) (726) (783) (841) (899) (962) (1,040) (1,110) (1,164) (1,231)

Operational cost growth

42% 8% 7% 7% 7% 8% 7% 5% 6%

EBITDA 266 369 411 468 490 513 615 641 644 658

EBITDA growth - 39% 12% 14% 5% 5% 20% 4% 0% 2%

EBITDA margin 34.2% 33.7% 34.5% 35.8% 35.3% 34.8% 37.1% 36.6% 35.6% 34.8%

Depreciation & Amortisation (254) (259) (259) (259) (259) (259) (142) (142) (142) (142)

Interest paid (170) (170) (170) (170) (170) (170) (170) (170) (124) (124)

Profit before tax (157) (58) (10) 53 83 115 342 380 414 440

Cash tax 0 0 0 0 0 0 (43) (82) (94) (98)

Net Income (157) (58) (10) 53 83 115 300 297 320 342

Cash from Operations 96 201 249 312 342 373 441 439 461 484

EBITDA / interest paid 1.56 2.17 2.42 2.76 2.88 3.02 3.62 3.77 5.17 5.29

DSCR (CFO / interest paid) 0.57 1.18 1.47 1.84 2.01 2.20 2.35 2.10 2.95 3.10

Passengers carried (million) 22.5 24.3 26.3 28.1 30.0 32.1 34.3 36.4 37.4 39.0

Capacity utilisation 50% 54% 58% 62% 67% 71% 76% 81% 83% 87%

Note:2013 is for 8 months beginning April

Source: Maybank IB



Page 1 of 2

Capital structure outlook

Capital required. We understand that MAHB will provide for a

minimum of 10% of uncollateralized equity for the KLIA2 project.

Furthermore, MAHB’s cash requirement at any given point of time is

RM400m (RM300m for 6 months operational expenses and RM100m

for dividend provision).

Based on these assumptions, MAHB must raise capital to fund the

higher KLIA2 project cost. Looking at the table below, MAHB needs to

raise RM550m for our base case of RM3.9b KLIA2 cost. Technically

speaking, MAHB can raise 100% debt but the management has stated

that they are cautious of raising more than their allocated RM3.1b

sukuk facility for fear that it may undermine their AAA rating. This

leaves them with the choice of either ceasing dividend payments for two

years (MAHB pays ±RM200m dividends p.a.) or raising new equity

(8.6% new equity via either private placement or rights issue at current

share price).

MAHB’s capital requirement

Scenario Best case Base Case Worst Case

KLIA2 Cost 3,600 3,900 4,200

figures in RM million

MAHB's available equity 250 250 250

MAHB's required equity 360 390 420

Equity Surplus / (Deficit) (110) (140) (170)

Debt portion 3,240 3,510 3,780

Available facility 3,100 3,100 3,100

Drawn down (2,500) (2,500) (2,500)

Debt Surplus / (Deficit) (140) (410) (680)

Total Surplus / (Deficit) (250) (550) (850)

Sources: Company, Maybank IB

We favour debt. The cheapest method is to raise 100% debt as it is

the cheapest option (±4.5% vs. ±10.5% cost of equity) and MAHB’s

gross gearing would still be within the levels of global listed airports

(refer table below). The issue of AAA rating is secondary in our view as

ratings will probably go up when KLIA2 becomes more profitable.

Gearing ratio of selected listed airports

Sources: Company, Bloomberg, Maybank IB

0.77

1.39

0.84

0.70

1.25

1.62

0.62

0.97 0.93

1.10

0.00

0.50

1.00

1.50

2.00

MAH

B

Beijin

g

AOT

Japa

n

Mac

quar

ie

Frap

ort

Zuric

h

Vien

na

Aero

porto

de

Par

is

Cop

enha

gen

(X)

1.07-1.16

Average gearing ratio = 1.05x

MAHB gearing is currently 0.77x. It will rise to 1.07x-1.16x

assuming 100% debt is raised



Page 1 of 2

Other concerns

Will KLIA2 finish on time? The ability to complete the project by April

2013 remains to be seen. We are fairly confident that the terminal

building will be completed on time, this is the easy part. But we doubt

that runway C can be completed in time because the earthworks

require 1-2 years to stabilise before any tarmac can be paved. The 11th

hour announcement that runway C will be elongated to 3,960m raises

our doubts.

Will KLIA2 project cost rise again? We have listed the project viability

below based on various scenarios. If the KLIA2 project cost hovers

within MAHB’s guidance of RM3.6b-3.9b, the project is viable with

decent IRR’s of >12%. The cuttoff point is at RM4.2b (+8% cost

overrun), anything above that and the project IRR is <11% and we

would deem it not attractive and not bankable.

KLIA2’s project IRR and NPV

Scenario Best case Base Case Worst Case

KLIA2 Cost 3,600 3,900 4,200

Project IRR 13.1% 12.2% 11.3%

NPV (RM million) 7,648 7,579 7,523

Source: Maybank IB



Page 1 of 2

Earnings revisions

2011 & 2012

There is no change to our 2011 and 2012 forecasts.

2013

We have cut our 2013 earnings by 33% to RM273m from RM408m

earlier due to: (1) a higher depreciation charge from the terminal cost of

RM3.9b from RM2.5b (we have depreciated over 22 years being the

remaining life of MAHB’s airport concession); (2) a higher interest bill as

MAHB will take in RM1.0b of additional loans; and (3) higher

operational expenses due to the significantly larger KLIA2 size.

We wish to highlight however the high initial depreciation charge is

accounting treatment and distorts the true performance of the company.

We expect EBITDA and CFO to achieve growth YoY, which signifies

the good state and health of the company.

Valuation

Discounted cash flow. We retain our DCF valuation methodology with

a lower target price of RM7.03 (round down to RM7.00). Our

assumptions are: (i) a 22-year cash flow projection – the remaining

duration of the concession period, (ii) a terminal growth rate of 0%, and

(iii) WACC of 9.2%. The DCF valuation better reflect the growing

fundamentals compared to the PER valuation method with profits

expected to come off in 2013 as the KLIA2 becomes operational with

large interest and depreciation/amortisation costs kicking in while

awaiting the revenue to catch up.

Undemanding valuation. We think P/CFO and EV/EBITDA serve as a

good cross check valuation for MAHB as this is a cashflow based

investment. PER can be distorted due to the maturity profile of the

assets and accounting treatment issues. Based on these valuation

metrics, MAHB is still attractive given its undemanding P/CFO and

EV/EBITDA multiples of 7-11x in the forward 2012-13 period.

Target Price of RM7.00, implying 21% potential upside

Latest price At target price

Current 2011F 2012F 2013F Current 2011F 2012F 2013F

PER 14.5 13.4 11.9 24.0 PER 17.5 16.2 14.3 28.9

P / CFO 11.3 11.2 8.9 7.1 P / CFO 13.6 13.5 10.7 8.5

EV / EBITDA 10.2 10.4 10.9 10.0 EV / EBITDA 10.2 10.4 10.9 10.0

Source: Maybank IB



Page 1 of 2

INCOME STATEMENT (RM m) BALANCE SHEET (RM m)

FY Dec 2010A 2011F 2012F 2013F FY Dec 2010A 2011F 2012F 2013F

Revenue 1,812.9 2,038.2 2,215.6 2,519.8 Fixed Assets 2,320.1 3,283.9 5,120.1 4,862.7

EBITDA 706.9 795.3 922.1 972.9 Other LT Assets 2,290.5 2,292.7 2,276.2 2,276.3

Depreciation & Amortisation (162.7) (166.2) (179.6) (433.3) Cash/ST Investments 1,539.8 799.7 185.1 446.9

Operating Profit (EBIT) 544.2 629.1 742.5 539.6 Other Current Assets 868.9 986.0 1,071.7 1,218.8

Interest (Exp)/Inc (15.7) 23.1 12.0 (167.2) Total Assets 7,019.3 7,362.2 8,653.2 8,804.7

Associates (80.5) 0.0 0.0 1.0

One-offs 0.0 0.0 0.0 0.0 ST Debt 0.0 0.0 0.0 0.0

Pre-Tax Profit 445.0 652.2 754.5 373.4 Other Current Liabilities 714.0 803.4 725.3 804.3

Tax (150.4) (176.1) (203.7) (100.8) LT Debt 2,500.0 2,500.0 3,510.0 3,510.0

Minority Interest (0.7) (0.0) (0.1) (0.0) Other LT Liabilities 516.0 531.4 553.6 591.6

Net Profit 294.6 476.1 550.8 272.6 Minority Interest 5.5 5.5 5.5 5.5

Recurring Net Profit 378.1 476.1 550.8 272.6 Shareholders' Equity 3,283.9 3,521.9 3,858.8 3,893.3

Total Liabilities-Capital 7,019.3 7,362.2 8,653.2 8,804.7

Revenue Growth % 39.0% 39.0% 41.6% 38.6%

EBITDA Growth (%) 30.0% 30.9% 33.5% 21.4% Share Capital (m) 1,100.0 1,100.0 1,124.1 1,124.1

EBIT Growth (%) 16.3% 23.4% 24.9% 10.8% Gross Debt/(Cash) 2,500.0 2,500.0 3,510.0 3,510.0

Net Profit Growth (%) 8.9% 14.0% 14.9% 7.0% Net Debt/(Cash) 960.2 1,700.3 3,324.9 3,063.1

Recurring Net Profit Growth (%) 4.8% 6.6% 6.9% 3.1% Working Capital 1,694.7 982.3 531.5 861.5

Tax Rate % 20.9% 23.4% 24.9% 10.8%

CASH FLOW (RM m) RATES & RATIOS

FY Dec 2010A 2011F 2012F 2013F FY Dec 2010A 2011F 2012F 2013F

Profit before taxation 445.0 652.2 754.5 373.4 EBITDA Margin % 39.0% 39.0% 41.6% 38.6%

Depreciation 162.7 166.2 179.6 433.3 Op. Profit Margin % 30.0% 30.9% 33.5% 21.4%

Net interest receipts/(payments) 15.7 (23.1) (12.0) 167.2 Net Profit Margin % 16.3% 23.4% 24.9% 10.8%

Working capital change (275.0) 496.1 3.8 219.3 ROE % 8.9% 14.0% 14.9% 7.0%

Cash tax paid (140.5) (176.1) (203.7) (100.8) ROA % 4.8% 6.6% 6.9% 3.1%

Others (incl'd exceptional items) (2.9) 23.1 12.0 (167.2) Net Margin Ex. El % 20.9% 23.4% 24.9% 10.8%

Cash flow from operations 296.9 1,138.4 734.1 925.3 Dividend Cover (x) 0.5 0.5 0.4 0.9

Capex (833.6) (1,870.1) (1,839.9) (200.0) Interest Cover (x) (34.6) NA NA (3.2)

Disposal/(purchase) 39.1 0.0 0.0 0.0 Asset Turnover (x) 0.3 0.3 0.3 0.3

Others (312.7) 0.0 0.0 0.0 Asset/Debt (x) 2.8 2.9 2.5 2.5

Cash flow from investing (810.3) (1,870.1) (1,839.9) (200.0) Debtors Turn (days) 0.0 0.0 0.0 0.0

Debt raised/(repaid) 1,991.9 0.0 1,010.0 0.0 Creditors Turn (days) 0.0 0.0 0.0 0.0

Equity raised/(repaid) 0.0 0.0 0.0 0.0 Inventory Turn (days) 0.0 0.0 0.0 0.0

Dividends (paid) 188.9 238.0 238.0 238.0 Net Gearing % 29.24 48.28 86.17 78.67

Interest payments 0.0 0.0 170.0 170.0 Debt/ EBITDA (x) 3.5 3.1 3.8 3.6

Others (395.7) (246.5) (926.9) (871.4) Debt/ Market Cap (x) 0.4 0.4 0.5 0.5

Cash flow from financing 1,785.1 (8.4) 491.1 (463.4)

Change in cash 1,271.7 (740.1) (614.6) 261.9

Source: Company, MaybankIB



Page 1 of 2

Appendix 1: Background of the LCCT / KLIA2

1. 2005. AirAsia Berhad requested for a LCCT as the main terminal at

KLIA was not suitable for low cost operations and is unable to cater for

future growth requirements.

2. 2006. MAHB unveiled the LCCT at the south end of the KLIA

complex on 23 March 2006. The LCCT costs RM108m and has a

capacity of 10 million passengers a year. This is a temporary solution

until a permanent solution is found.

3. 2007-2008. Due to the increasingly “challenging” relationship with

MAHB and worried about its future growth plans, AirAsia Group has

explored various sites (Subang, Bukit Buruntung, etc) to develop a new

airport which specifically caters for low cost carriers.

4. December 2008. The Cabinet approved the construction of a new

airport dedicated for LCCT on a 2,800 hectare site in Labu, Negeri

Sembilan. The new airport, estimated to cost RM1.6b (excluding land

cost), will be built and funded by a joint venture of Sime Darby, AirAsia

and other potential participants. The project was supposed to

commence in first quarter 2009 and finish by end of first quarter 2011.

Source: NST, 20 December 2008.

5. January 2009. The Government rejected the consortium’s proposal

to build a new airport at Labu, Negeri Sembilan. Instead, a new LCCT

will be built by MAHB at the existing KLIA complex. MAHB has pledged

that a new LCCT can be built at competitive cost at the existing KLIA

land bank and it will be ready by October 2011.

Source: Utusan Malaysia, 31 January 2009

6. March 2009. MAHB expanded the existing LCCT to cater for 15

million passengers a year. By now, the LCCT infrastructure is struggling

to cope with the rapid growth. AirAsia’s future growth plans are

negatively impacted by the LCCT’s lack of spare capacity.

7. October 2009. Deputy Transport Minister, Datuk Abdul Rahim Bakri

said that the LCCT is estimated to cost RM2.0b. It is situated 2 km

away from the KLIA and will be able to handle 30 million passengers a

year. The construction will also include a RM100m extension of the

express rail link connecting KLIA to the new LCCT.

Source: Business Times, 30 October 2009

New LCCT

KLIA

Current LCCT

Entrance foyer of the LCCT

Typical scene at the LCCT during peak period



Page 1 of 2

8. December 2009. The first contract worth RM362m was awarded to

WCT Berhad for the site preparation, earthworks and main drainage.


9. January 2010. The second contract worth RM291m was awarded to

Gadang Berhad for earthworks for the runway and taxiways.


10. May 2010. MAHB gave AirAsia Berhad (LCCT anchor tenant)

assurance that the new LCCT will be ready by March 2012. This is a

seven months delay than originally planned.

Source: Business Times, 3 May 2010

11. June 2010. MAHB’s Managing Director, Tan Sri Bashir stated that

the building size has increased from the one originally planned and the

LCCT requires a revision in design to accommodate the larger building.

No details of the revision were divulged as the tender process has yet

to be completed. The open tender exercise for the terminal was three

months longer than expected.

Source: Business Times, 30 June 2010

12. July 2010. MAHB awarded the third package worth RM997m for

the construction of the low cost terminal building to UEM-Bina Puri JV.

This brings the cumulative value of contracts to date to RM1.6b. There

are still many items that have yet to be awarded (runway, taxiway,

apron, draining the retention pond, relocation of a sewerage plant).

Source: Company, 16 July 2010

13. July 2010. Transport Minister Datuk Seri Kong Cho Ha stated that

the completion date for KLIA 2 is now pushed ahead to October 2012,

this is an additional seven months delay from the previous dateline.

MAHB later clarified that the extra commercial space and runway

extension is the cause of this third delay.

Source: Buseiness Times, 25 January 2011

14. Nov 2011. MAHB announced the final design of KLIA2 whereby it

will be significantly bigger, more amenities and longer runway. Due to

the material change in work required, the cost has been revised up to

RM3.6-3.9b and the expected completion date is pushed to April 2013.

Source: Company, 29 November 2011

Altogether, there were four revisions to the project completion date with a total of 19 months delay from the initial plan.



Page 1 of 2

APPENDIX 2

Definition of Ratings

Maybank Investment Bank Research uses the following rating system:

BUY Total return is expected to be above 10% in the next 12 months

HOLD Total return is expected to be between -5% to 10% in the next 12 months

SELL Total return is expected to be below -5% in the next 12 months

Applicability of Ratings

The respective analyst maintains a coverage universe of stocks, the list of which may be adjusted according to needs. Investment ratings are

only applicable to the stocks which form part of the coverage universe. Reports on companies which are not part of the coverage do not

carry investment ratings as we do not actively follow developments in these companies.

Some common terms abbreviated in this report (where they appear):

Adex = Advertising Expenditure FCF = Free Cashflow PE = Price Earnings

BV = Book Value FV = Fair Value PEG = PE Ratio To Growth

CAGR = Compounded Annual Growth Rate FY = Financial Year PER = PE Ratio

Capex = Capital Expenditure FYE = Financial Year End QoQ = Quarter-On-Quarter

CY = Calendar Year MoM = Month-On-Month ROA = Return On Asset

DCF = Discounted Cashflow NAV = Net Asset Value ROE = Return On Equity DPS = Dividend Per Share

NTA = Net Tangible Asset ROSF = Return On Shareholders’ Funds

EBIT = Earnings Before Interest And Tax P = Price WACC = Weighted Average Cost Of Capital

EBITDA = EBIT, Depreciation And Amortisation P.A. = Per Annum YoY = Year-On-Year

EPS = Earnings Per Share PAT = Profit After Tax YTD = Year-To-Date

EV = Enterprise Value PBT = Profit Before Tax

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Page 1 of 2

APPENDIX 2

Additional Disclaimer (for purpose of distribution in Singapore)

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Documents

9 December 2011 Malaysia Airports Holdingsupload.xinhua08.com/2011/1209/1323414011445.pdf9 December 2011 Page 3 of 16 Malaysia Airports Holdings 17 October 2011 Page 1 of 2 Key changes