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Thursday, February 06, 2014

Airport- a selldown and a buying opportunity?

Result Update

For QE31/12/2013, Airport's net profit dropped 57% q-o-q & 39% y-o-y to RM48.5 million while revenue was mixed; down 16% y-o-y but rose 15% q-o-q to RM1.12 billion. Core revenue (excluding construction revenue) actually rose 16% y-o-y & 11% q-o-q to RM684 million. Core net profit (stripped off construction profit & impairment losses) dropped 72% y-o-y & 69% q-o-q to RM32.2 million due to larger than expected share of associate loses of RM48.8 million (from Istanbul Sabiha Gokcen [ISG]) and other one-off hike in operating costs (from the proposed acquisition of ISG & larger bonus payment & staff adjustment).

As per a  report from Alliance Research, Airport's core revenue increased by 14% from RM2.163 billion to RM2.463 billion. The increase in core revenue was due to 9% hike in landing & parking charges, strong passenger growth of 18.4% y-o-y, and higher retail and rental revenue. Despite the increase in core revenue, core net profit dropped 19.6% from RM400 million to RM322 million due to user fee (+137.3% y-o-y), staff costs (+20.9% y-o-y), depreciation and amortization costs (+25.6% y-o-y) and administration expenses (+15.8%) related to the acquisition of ISG


Table: Airport's last 8 quarterly results

The chart below shows that Airport's top-line has been rising steadily since FY2010 while the bottom-line has been slipping. This is due to the decline in its profit margin. Is this the result of handling more passengers who flew on discount carriers'?


Chart 1: Airport's last 31 quarterly results

Valuation

Airport (closed at RM7.94 today) is now trading at a trailing PE of 25 times (based on last 4 quarters' EPS of 31.86 sen). Based on PE multiple, Airport looks expensive. However, Alliance Research valued the stock at RM10.46 using DCF method of valuation.

Technical Outlook

Airport has entered a short-term downtrend (with lower 'low' and lower 'high' formed). It broke the psychological RM8.00 mark today. Unless it recovers back above the RM8.00 soon, the stock is likely to test its intermediate uptrend line support at RM7.20 and below that, the horizontal line at RM7.00. (Note: The selldown in Airport may be driven by news of the contractor for klia2 failing to obtain the Certificate of Completion and Compliance. It was reported that Indah Water Konsortium Sdn Bhd, the Sepang Municipal Council and the Fire and Rescue Department inspected the building for klia2 in the last week of January and found that 65% of the main terminal did not comply with fire and safety standards (here). This may delay the opening of klia2 in May this year.)


Chart 2: Airport's daily chart as at Feb 5, 2014 (Source: Tradesignum)


Chart 3: Airport's weekly chart as at Feb 5, 2014 (Source: Tradesignum)

Conclusion

While Airport is a good proxy for the play on the strong demand for air travel (driven by growth in discount carriers, such as Airasia), the technical breakdown could lead to further selldown. This selldown could be a buying opportunity. You can aim to buy at the RM7.00 level on the assumption that the stock will rebound back from the intermediate uptrend line. From here to the Alliance Research's target price of RM10.46, the upside is a whopping 49%!

Note: 
In addition to the disclaimer in the preamble to my blog, I hereby confirm that I do not have any relevant interest in, or any interest in the acquisition or disposal of, Airport.

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