Travel restrictions hamper Muhibbah’s recovery

Cambodian govt requires foreigners to pay upfront RM12,870 to cover for Covid-19 testing at its gateway

by PRIYA VASU/ pic credit: corp.cambodia-airports.aero

MUHIBBAH Engineering (M) Bhd’s airport concession business in Cambodia may continue to face a weak second half of the year (2H20) due to ensuing travel restrictions by the Cambodian government which include foreigners to pay upfront US$3,000 (RM12,870) to cover for Covid-19 testing at its gateway.

According to a Muhibbah Engineering spokesperson, such hefty charge could further deter inbound tourists to the popular South-East Asian country that has already plummeted due to the pandemic.

Muhibbah has stakes in three Cambodian international airports in Phnom Penh, Siem Reap and Sihanoukville. More than 90% of its associate earnings came from the Cambodian airports.

In the first quarter, the airports lost 42% of foreign tourists’ arrivals compared to 3.27 million travellers registered in the first three months of the same period last year.

China, Vietnam, Thailand, the US and South Korea were the largest sources of foreign tourists to the country during the January-March period this year. In March alone, Cambodia only registered 223,400 foreign tourists, a nosedive of 65% for the same month last year as travel restrictions and fear kept tourists away.

The Khmer state announcement on the new charge is in addition to the rules requiring travellers to produce a mandatory US$50,000 health insurance policy and a Covid-19 negative certificate taken 72 hours before arrival.

Muhibbah’s spokesperson said these hefty financial rules would add pressure to the tourism industry for the country and airport operators this year before travelling sentiment could improve.

“Carriers are reluctant to continue flying there because the number of passengers has decimated. This has led to airlines contemplating decisions to either reduce flight frequencies or temporarily suspend flights,” the source told The Malaysian Reserve.

RHB Investment Bank Bhd (RHB Research) stated that Muhibbah’s weak earnings of RM5.1 million for the first quarter ended March 31, 2020 (1Q20) (down 84.55% from RM33.01 million in 1Q19) were not a surprise as the group’s airport concession division has been adversely impacted by the Covid-19 pandemic.

The weak concession business’ earnings could continue for the rest of the year, but be mitigated by Muhibbah’s infrastructure and crane businesses.

“We had a bit of a hiccup during the Movement Control Order where projects were halted. But as soon as restrictions eased, we were back at our usual operation. Our crane arm Favelle Favco Bhd complied with all the post-MCO procedures,” the group’s spokesperson said.

He added that the low oil and gas (O&G) prices have marginally affected the business and delayed payments.

Muhibbah owns 59% of Favelle Favco which has exposure to the O&G industry.

RHB Research expects Muhibbah’s construction segment to remain under pressure in 2Q20 due to total restrictions on work activities and recovery time.

“Nevertheless, 2H20 should see activities gradually resuming. As of March, the outstanding orderbook stood at RM1.3 billion, providing one to two years of visibility,” stated RHB Research.

Infrastructure projects accounted for RM772 million of Muhibbah’s total orderbook, while the crane-making business and its newly acquired Intelligent Automation Group (IAG) account for RM521 million worth of jobs/ contracts.

“The IAG business is the only business sector in Muhibbah that was not affected by Covid-19 because its services mainly consisted of providing automation solutions for the O&G companies,” added the spokesperson.