SEPANG - Malaysia Airports Holdings Berhad ("MAHB") recorded a revenue of RM1,956.6 million on the back of 11.8% passenger growth for the six months ended 30 June 2014 (“1H14”). This 11.8% growth was driven by strong air travel demand within the Asia Pacific region and outpaced the overall global passenger growth rate of 6.2% for 2014.
This revenue of RM1,956.6 million was inclusive of construction revenue and costs amounting to RM662.4 million and RM633.9 million respectively. This was in line with the adoption of IC Interpretation 12: Service Concession Arrangements (“IC 12”) effective 1 January 2012 whereby MAHB recognises the construction revenue and costs in accordance with FRS 111: Construction Contracts by reference to the stage of completion of the construction works of klia2, which is construction works on public sector infrastructure assets and services currently being undertaken by MAHB.
Excluding the effects of IC 12, revenue for 1H14 was RM1,294.2 million, which was 11.2% higher than the RM1,163.9 million registered in the corresponding period in 2013 (“1H13”). The revenue increase was attributed to stronger results from airport operations segment which improved by 10.5% to RM1,217.6 million. A total of 41.3 million passengers passed through MAHB’s 39 airports in Malaysia. This growth in passenger numbers, together with aircraft movements, contributed to aeronautical revenue improving by 13.4%. Non-aeronautical revenue also recorded a growth of 7.3% due to improved performance in the retail and rental businesses.
As anticipated, planned expansion in airport operations had a significant impact on earnings before interest, tax, depreciation and amortisation (“EBITDA”) and profit after tax (“PAT”) for 1H14. Excluding the effects of IC 12, the Group’s EBITDA remained flat at RM419.7 million – 0.6% higher than RM417.1 million in 1H13. Nevertheless, the Group remains on track to meet its 2014 headline key performance indicator (“KPI”) for profitability previously announced as RM861 million. As of end June 2014, the Group has achieved 48.8% of its EBITDA KPI.
By the same token, PAT for 1H14 dropped by 71.1% to RM55.5 million from RM191.8 million when compared to its corresponding period in 2013. MAHB incurred two one-off costs in 2014. One of which was the 100% recognition of the user fee payment to the Government of Malaysia in the Group’s income statement amounting to RM9.4 million. Previously, the amount of user fee recognised in the income statement represented half of the total user fee payable to the Government, while the other half was to reduce the amount due for the Balance Residual Payment which arose from MAHB's restructuring exercise completed in February 2009. Upon the full settlement of the Balance Residual Payment in April 2013, the user fee is now fully recognised in the income statement.
The other was the recognition of previously unrecognised non-cash losses upon the acquisition of an additional 40% stake in Istanbul Sabiha Gokcen International Airport (“SGIA”) amounting to RM42.5 million.
There were also new recurring costs which commenced during the reporting quarter namely, SGIA’s recurring loss of RM8.3 million for 1H14 pursuant to the above acquisition, depreciation of RM63.0 million and finance costs of RM30.0 million for klia2, as well as the payment of airline incentive amounting to RM24.4 million. Excluding all these one-off and new items would give rise to an EBITDA of RM475.6 million – 8.3% higher than RM439.2 million in 1H13; as well as profit before tax (“PBT”) of RM312.5 million – 2.9% higher than RM303.8 million in 1H13.
Whereas, with the effects of IC12, the revenue of RM1,956.6 million represented a slight decrease of 2.4% compared to RM2,005.3 million in 1H13. Construction revenue for 1H14 amounted to RM662.4 million compared to RM841.4 million in 1H13. EBITDA slightly weakened by 1.2% to RM448.2 million, from RM453.6 million in 1H13. PAT also fell by 63.2% to RM84.0 million in 1H14, compared to RM228.3 million recorded in 1H13.
Airport Operations Segment
Strong air travel demand within the Asia Pacific region has led to both international and domestic passenger movements recording strong growth at 10.4% and 13.1% respectively. The total passenger movements in KLIA increased by 9.7%, whereby both KLIA-MTB and klia2 / LCCT recorded positive growth of 9.2% and 10.1% respectively. All other airports recorded strong aggregate growth in total passenger movements of 14.9%. Total aircraft movements grew 9.8% to 384,963 aircrafts, with the domestic sector recording a higher growth of 10.6% compared to the international sector, which recorded a growth of 8.6%.
Excluding the effects of IC 12, the 13.4% improvement in aeronautical revenue was also attributed to the increase in Marginal Cost Support for PSC (“MARCS PSC”) as the new PSC rates are lower than the benchmark rate as stipulated in the Operating Agreements signed with the Government. Also contributing to the increase in aeronautical revenue is the rise in landing and parking charges with increases of 9% and 18% respectively (compounded annually effective 1 January 2012, 1 January 2013 and 1 January 2014).
The growth of non-aeronautical revenue of 7.2% to RM561.5 million arose from improved performance in the retail and rental businesses where MAHB's own retail business grew 6.9%, driven by increase in passenger volume and higher retail spending by passengers. Revenue from rental of space and other commercial segments grew 9.9% to RM215.7 million, contributed mainly by higher rental royalty and increase in rental space at klia2.
Non-airport Operations Segment
The non-airport operations segment recorded revenue of RM76.6 million in 1H14, representing a growth of 24.1% from RM61.7 million recorded in 1H13. The project and repair maintenance segment registered higher revenue of RM24.5 million in 1H14 which was 38.2% higher than the RM17.7 million registered in 1H13 mainly due to new facility management work won including for the provision of facility maintenance services at the new Doha International Airport. The hotel segment revenue increased by 15.1% to RM37.1 million contributed mainly by higher occupancy rate and improved room rate. The agriculture and horticulture segment registered higher revenue of RM15.1 million in 1H14, 27.7% higher than the RM11.8 million registered in 1H13 due to higher Fresh Fruit Bunches price and higher production volume (1H14: RM552.97/27,109MT vs 1H13: RM457.31/25,612MT).
Group Cost Analysis
The PAT growth was dampened primarily by increase in operating, depreciation and amortisation costs as well as share of associate losses. Higher operating costs during 1H14 were mainly attributed by higher user fee, staff and utility costs. The user fee payable to the Government for 1H14 amounted to RM129.0 million as compared to RM108.2 million recognised in the income statement in 1H13, representing a 19.1% increase. Staff and utility costs increased by 10.7% and 34.4% to RM252.4 million and RM140.1 million respectively, mainly due to one-off salary benchmarking in April 2014, salary adjustment and additional manpower required for klia2 as well as higher utility costs for both electricity and chilled water. Electricity costs for the period has risen by RM21.3 million, of which RM17.3 million is attributable to higher consumption and impact of tariff hike in January 2014 at KLIA by approximately RM9.0 million and RM8.3 million respectively. Costs associated with chilled water had also rose by RM13.3 million due to increase in KLIA’s consumption of RM2.3 million and higher gas prices of RM10.7 million.
Depreciation and amortisation costs had risen by 60.6% to RM200.5 million for 1H14 from RM124.8 million recorded in 1H13. As explained above this was primarily attributed to additional amortisation and depreciation arising upon the commencement of operations of klia2. Additionally, contributing to the drop in PAT is the one-off recognition of previously unrecognised losses of a jointly controlled entity - Istanbul Sabiha Gokcen International Airport (“SGIA”) upon the completion of the additional 40% stake acquisition at the end of April 2014 amounting to RM42.5 million, as well as its current period losses of RM12.0 million. Nevertheless, the depreciation and amortisation costs along with the share of losses of the jointly controlled entity are non-cash items.
Industry Review
Moving into the second half of the year, consumers continue to benefit from lower fares and more routes. Consequently, the International Air Transport Association ("IATA") expects 1% of the world’s GDP is to be spent on air travel in 2014. IATA has also announced that global passenger traffic recorded 6.2% growth for May 2014 against May 2013. More importantly, IATA has indicated that passenger traffic will continue to accelerate and will be sustained in the months ahead.
Malaysia’s current traffic performance of 11.8% continues to exceed IATA’s 5.3% global estimate for the year. The registered traffic in 1H14 is the highest ever recorded by Malaysia Airports for the first half of any year. While growth continues to remain positive, the percentage of growth has declined slightly in May and June, partly due to a higher growth base in 2013. In addition, traffic between certain sectors such as Thailand, China and Middle-East have weakened due to political uncertainties in Thailand, the escalating conflict in the Middle East and the residual impact from the MH370 incident. On a more positive note, there were more direct domestic flights across all airports within Malaysia, contributing to a growth of 13.1%.
Industry Outlook
The unfortunate MH17 event may temporarily affect passenger numbers.
Our immediate focus is to extend our full support to the Government, Malaysia Airlines and the affected families.
Latest international and domestic seat capacity data shows an average increase of 6% and 0.8% respectively for the next six months, lower than previous indications. The lower economic growth in East Asia and Pacific countries as reported by World Bank may also have an impact on traffic.
For the MAHB Group, the benefit from the entry of new airlines and expansion of local carriers is expected to continue. Malaysia Airlines, AirAsia Group and Malindo Air are expected to continue to contribute strongly to the enviable passenger growth together with other foreign airlines. Malaysia Airlines’ entry into the Oneworld Alliance in February 2013 has significantly increased the market outreach and breadth of connectivity across continents and will continue to provide critical support for passenger growth. The expected seat capacity expansion coupled with strong tourist arrivals pursuant to the Visit Malaysia Year 2014 will continue to fuel the growth momentum. In addition, MAHB will continue to pursue airlines globally by further enhancing its marketing efforts and various marketing initiatives. Based on the current year to date traffic performance and the foreseen uncertainties, MAHB remains confident to register a robust passenger growth for the year.
The successful development and opening of klia2 is a testament to how far MAHB has journeyed in transforming from a traditional airport operator into a successful world-class airport business. With 45 million passenger capacity, klia2 is an iconic terminal that serves as a global benchmark for similar terminals to be built in the future. klia2 is expected to be the catalyst in boosting MAHB's performance moving forward, mainly contributed by its unique targeted retail and commercial offerings attractive to passengers and airport visitors. With klia2, KLIA now has a total capacity to handle 70 million passengers per annum to cater for the rapid air travel growth, remain competitive within the region and cement Malaysia’s position as a leading global aviation hub.