New Cambodian airports proposal could have impact on Muhibbah

PETALING JAYA: Recent reports of new airport projects in Phnom Penh and Siam Reap, which are targeted for completion in mid-2022 and 2022/23 respectively, could directly impact Muhibbah Engineering Bhd’s existing airports.

In a report by Kenanga Research, it said the jury is still out whether the new airports will take shape according to plan.

“The local government has yet to sign any concession agreements even though construction works have started, the existing concessionaire in which Muhibbah holds a 21% effective stake has exclusive rights for airport operation in Phnom Penh, and the high investment costs to build the new airports may lead to possible construction delays,” it noted.

It noted that in the scenario where both the new airports come on stream, Muhibbah’s existing airports in Phnom Penh (which has an exclusive clause in the concession agreement) and Siem Reap (non-exclusive) may either be asked to close down or continue their operations, inevitably causing earnings to be significantly impacted.

“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.

Muhibbah’s 70%-owned Muhibbah Masteron Cambodia JV Ltd holds a 30% stake in Societe Concessionaire de l’Aeroport (SCA).

The remaining 70% stake in SCA is held by France-based Vinci.

SCA has been granted the build-operatetransfer concession rights to manage three airports in Cambodia, namely in Phnom Penh, Sihanoukville (both on an exclusive basis) and

Siem Reap (non-exclusive) until 2040.

In terms of profit contributions, the airport in Phnom Penh accounts for approximately half of total contributions with the airports in Siam Reap (one-third share) and Sihanoukville making up the balance.

Meanwhile, Kenanga said having less people travel over concerns of the spread of the novel coronavirus (Covid-19) will not have a lasting adverse effect.

“Most likely, passenger traffic at its airports (which plunged as much as 40% recently due to the slump in Chinese travellers who typically made up slightly more than one-third of tourist arrivals) is expected to recover eventually when the outbreak is contained in the coming months,” it said.

Kenanga Research is maintaining its outperform call on Muhibbah, but has revised down its target price to RM2.35 from RM2.90.