TA Sector Research

Author: sectoranalyst   |   Latest post: Thu, 21 Nov 2019, 3:55 PM


Malaysia Airports Holdings Berhad - Perfect Time for Short Travelling in Sep-19

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Several long weekends in Sep-19

Malaysia Airports’ (MAHB) monthly passenger traffic surged 7.6% YoY to 8.4mn passengers in Sep-19, supported by decent domestic and international passenger movements, which surged 11.9% and 3.6% (Fig 3 & 4), respectively. Meanwhile, the rise in international passenger movements was driven by respective 5.1% and 2.0% growth in the ASEAN and non-ASEAN sectors (Figure 5 & 6). According to announcement, the overall average load factor was 72.4% in Sep-19, an increase of 2.1%-points over Sep-18. Note that there were several long weekends in Sep-19, which made it perfect for short travelling.

For 9M19, the cumulative growth in passenger movements surged by 5.7%, a tad higher than 5.5% a month ago. This was higher than our 2019 growth forecast of 3.0% and management’s target of 4.9%. However, we keep our forecast unchanged. Essentially, we still do not believe the growth is sustainable on the back of global economic slowdown, protest in Hong Kong and implementation of departure tax.

ISG to turnaround

Istanbul Sabiha Gokcen (ISG) achieved a moderate growth of 2.7% in passenger movements in Sep-19, driven by a 19.3% surge in international passengers, which more than offset a 6.4% decline in domestic passengers. Note that the double-digit growth in the international segment has lasted for 12th straight months since Oct-18 and this would bode well for profit-turnaround this year.

New PSC to be announced soon

The announcement of new PSC under the regulatory asset base (RAB) framework will likely be announced in a few weeks’ time. All eyes will be on factors that will affect the new PSC like:

1) The nominal pre-tax WACC (10.88% suggested by Mavcom in 2nd consultation paper),

2) Total capex for the first regulatory period (RM5bn for 2020-2022),

3) The different tiers and grouping of tariffs in accordance to the level of service and infrastructure and issue of cross-subsidisation. MAHB prefers the geographical cluster approach where tariffs will be categorised into 4 different tiers and 4 different clusters, and

4) Implementation of transfer PSC.

After the announcement of new PSC, there is another important factor that will affect MAHB’s profitability, i.e.: new operating agreement between MAHB and the government, which will likely be made in end-2019. The new operating agreement is important as it will determine the future user fees to be charged by the government for MAHB’s rights to operate airports and airport assets owned by the government.

Forecast & Valuation

We maintain our FY19-21 earnings projections for MAHB. Awaiting the announcement of new PSC, we advise investors to stay on the sideline. Maintain Sell on MAHB with unchanged target price of RM8.47.

Source: TA Research - 11 Oct 2019

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