Analyst: Muhibbah could see reprieve in clause
KUALA LUMPUR: Muhibbah Engineering Bhd’s (Muhibbah) shares have been hit by adverse news flows regarding its Cambodia airports but analysts believe its long-term risks could be mitigated by an exclusivity clause in the concession agreements.
According to the research team at Kenanga Investment Bank Bhd (Kenanga Research), Muhibbah was facing intense selling pressures following news of construction of new airports in Cambodia (which would then impact its existing airports) and the fast spreading 2019 Novel Coronavirus (Covid-19) which has affected travelling.
It noted that recent media reports have mentioned that construction works of new airports in Phnom Penh and Siem Reap are proceeding. According to the news, the new airports are targeted to be completed in mid-2022 (in Phnom Penh) and 2022/23 (in Siem Reap). This could then directly impact Muhibbah’s existing airports.
“The jury is still out whether the new airports will take shape according to plan given the following reasons; the local government has yet to sign any concession agreements even though construction works have started, the existing concessionaire (Societe Concessionaire de l’Aeroport, in which Muhibbah holds a 21 per cent effective stake) has exclusive rights for airport operation in Phnom Penh.
“Apparently, the new airport operator in Phnom Penh has recently engaged with SCA to explore the possibility of collaborations, the high investment costs to build the new airports – to the tune of US$1.5 billion for the airport in Phnom Penh and US$1 billion in Siem Reap – may lead to possible construction delays,” it said.
In the scenario where both the new airports come on stream, Kenanga Research highlighted that Muhibbah’s existing airports in Phnom Penh (which has an exclusive clause in the concession agreement) and Siem Reap (nonexclusive) might either be asked to close down or continue their operations.
“Either way, this will inevitably cause earnings to be significantly impacted. Muhibbah, via SCA, has exposure to three airports in Cambodia, which are captured in the concessions division.
“This segment contributed pre-tax profit (before group eliminations and minority interests) of RM142.6 million (or 59 per cent) to Muhibbah in the first nine months of the financial year 2019 (9MFY19).
“Nonetheless, in such an event, SCA could seek compensation (for an undisclosed amount) from the government on account of its exclusive rights. We gather under the agreement, any legal disputes will be settled via arbitrations in the court of Switzerland,” it said.
As for the impact of COVID19
on Muhibbah’s airports, Kenanga Research pointed out that it would like be a short-term concern for the company.
“Most likely, passenger traffic at its airports -- which plunged as much as 40 per cent recently due to the slump in Chinese travellers -- is expected to recover eventually when the outbreak is contained in the coming months,” it opined.
The jury is still out whether the new airports will take shape according to plan given the following reasons; the local government has yet to sign any concession agreements even though construction works have started, the existing concessionaire (Societe Concessionaire de l’Aeroport, in which Muhibbah holds a 21 per cent effective stake) has exclusive rights for airport operation in Phnom Penh.
Kenanga Research