Budget airport deal shuts out Air Asia hopes

04 December 2009

But infrastructure firm WCT's shares get a boost on RM363m award

THE award of a RM363 million (S$148.5 million) contract for the first phase of a new low cost carrier terminal (LCCT) to a Malaysian infrastructure firm by airports owner Malaysia Airports Holdings (MAHB) appears to have shut out budget carrier Air Asia which had wanted to build the LCCT.

But it's boosted the fortunes of infrastructure firm WCT whose shares moved up 1.5 per cent to RM2.63 apiece.

On Wednesday, WCT told the stock exchange that it had been awarded a RM363 million earthworks and drainage job for the new RM2 billion LCCT by MAHB.

The contract is the first awarded by MAHB which has promised to deliver the LCCT - designed for 30-45 million passengers a year - by the third quarter of 2011. But its enforcement seems to have shut the door on budget carrier Air Asia which has been lobbying Prime Minister Najib Razak - most recently in New York last week - to take over the project.

The budget carrier, which will be the main user of the new terminal, feels that MAHB will not make the deadline and is likely to overshoot the RM2 billion budget, according to industry executives familiar with the matter.

According to the executives, Air Asia is also peeved that MAHB will not furnish an indemnity to the budget carrier in case of late completion.

The standoff, which has been going on for almost 10 months, illustrates the dynamic tensions between an entrepreneur-driven firm and a government-linked company that doubles as the operator and owner of almost all the nation's airports.

But the award has also boosted the fortunes of WCT which most analysts have now rated a 'buy'.

The new contract will add to WCT's growing reputation as a can-do specialist whose resume for main infrastructure works include the Kuala Lumpur International Airport, the Guthrie Corridor, a highway, and the Medini precinct in the Iskandar Region.

It is also represented overseas but, to widespread analyst approval, has no exposure to Dubai which has been roiled recently by the debt problems of Dubai World. Instead, the firm has RM914 million worth of contracts in the oil producing Gulf kingdoms of Abu Dhabi, Qatar and Bahrain which are cash-rich because of petrodollars.

According to analysts, the new award will push WCT's outstanding order book to RM3.6 billion.

According to AmResearch, the firm is trading at 13 to 15 times 2010/2011 earnings which is at a 5-27 per cent discount to its peers like IJM Corporation and Gamuda. The research house pegged WCT's fair value at RM3.74 a share.

By S JAYASANKARAN

The Business Times