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Asia300

Malaysia Airports to spend more to upgrade facilities

To expand terminals' capacities, expect Turkish operations to turn profitable

Ground crew work among Malaysia Airlines planes on the runway at Kuala Lumpur International Airport in Sepang.   © Reuters

KUALA LUMPUR (Nikkei Markets) -- Malaysia Airports Holdings said Friday it plans to raise spending to maintain and upgrade some of its overcrowded terminals even as passenger traffic growth could moderate in 2018.

Expenditure could rise about 30% annually over the next three years, Managing Director Badlisham Ghazali said at a news conference. The company will expand capacity of Kuala Lumpur International Airport and other select terminals to capture traffic growth, he said.

"2018 will be focused on ramping up the initiatives around airside connectivity development at KUL (Kuala Lumpur) and our regional airports," said Badlisham. "This will be primary driver for attracting more airlines to our airports and building out our routes."

At KLIA, passenger traffic has exceeded the terminal's designed capacity by more than 2%, while other airports, such as the Subang Airport, are grappling with over 200% utilization. Malaysia Airports also operates klia2, base of AirAsia, the region's largest budget airline by fleet.

Passenger traffic could increase 6.3% this year, decelerating from 2017's 8.5% growth as more foreign carriers fly direct into other parts of the country, Badlisham said.

International passenger growth is expected to be 8.3% this year with China, India and Southeast Asia accounting for 75% of foreign passenger arrivals. In 2018, domestic traffic is estimated to rise 4.3%, largely driven by stable economic growth, he said.

Malaysia Airports is also in talks with potential partners for Istanbul Sabiha Gokcen International Airport in Turkey, which could return to net profit this year, Badlisham said. "It's always good to have partners" for international operations, he said.

Analysts said the passenger growth forecast appears conservative and the company is set for strong earnings growth with its Turkish operations returning to profit.

"The passenger growth would translate into higher passenger service charges, which contribute to their revenue," said Affin Hwang Investment Bank's analyst Loong Chee Wei. "With more passenger arrival, it would boost their revenue from non-aeronautical revenue."

Earnings could grow about 80% in 2018 for Malaysia Airports, estimates Nomura Securities' analyst Ahmad Maghfur Usman. This will be driven mostly by the "turnaround of Sabiha Gokchen Airport, which is experiencing higher traffic, and will result in better operating leverage," he said.

Net profit jumped more than seven times in the third quarter to 79.69 million ringgit ($19.35 million) over the same quarter last year thanks to robust domestic operations and retail sales. Quarterly revenue rose 12% year-on-year to 1.21 billion ringgit from 1.08 billion ringgit.

Shares of Malaysia Airports rose 0.2% to 8.80 ringgit while the benchmark FTSE Bursa Malaysia KLCI ended 0.8% higher. 

--Jason Ng

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