CIMB Research retains hold for MAHB, AirAsia over new aviation strategy

Date: 10/10/2018

Source  :  CIMB
Stock  :  AIRPORT       Price Target  :  9.24      |      Price Call  :  HOLD
        Last Price  :  8.20      |      Upside/Downside  :  +1.04 (12.68%)
Source  :  CIMB
Stock  :  AIRASIA       Price Target  :  3.56      |      Price Call  :  HOLD
        Last Price  :  3.13      |      Upside/Downside  :  +0.43 (13.74%)

KUALA LUMPUR: CIMB Equities Research is retaining its Hold call for Malaysia Airports Holdings Bhd (MAHB) and low-cost carrier AirAsia with target prices at RM9.24 and RM3.56 respectively following the latest development in the aviation industry.

It said on Wednesday the airport operator’s monopoly now held by MAHB will be broken up, with the entry of new private operators in geographically-distinct airport clusters.

“Maintain Hold on MAHB, as its interests will likely be protected as the government is willing to lower user fee collection and extend its concession.

“Retain Hold on AirAsia, which may benefit from having a stronger voice in the configuration of new terminals, as well as potentially lower PSCs,” it said in a research note.

At the “Malaysia: A New Dawn” conference on Tuesday, Transport Minister Anthony Loke said the country’s interests will be best served with airports and airlines working together to enable more flights and draw more tourists.

Hence, airports need to expand, and airlines should be given the full support needed to grow.

CIMB Research noted the new government does not have the financial capacity to build or expand airports and the private sector needs to take the initiative, but MAHB may not have the balance sheet necessary to execute all the projects. 

Separately, low-cost airlines want to operate from low-cost carrier terminals (LCCT) without aerobridges, so that Passenger Service Charges (PSC) can be lowered and passenger traffic can be stimulated, but MAHB is reluctant to facilitate this.

According to Loke, the government will formally abdicate its role in airport infrastructure funding to the private sector. 

Should MAHB be unable to fund all the necessary capex from its own balance sheet, MAHB will be required to source for new private capital, which will be injected into separate airport clusters. 
The government will also renegotiate the terms of the current operating agreement (OA) signed with MAHB.

“Currently, MAHB has two OAs, the first to operate KLIA (including klia2), and the second to operate the remaining 38 airports in Malaysia (Senai excepted). 

“The Transport Ministry envisions breaking up the 38 airports into several regional clusters, for which separate OAs will be signed, with terms designed specifically to incentivise operators to expand capacity and to keep them in good functional condition. MAHB can look for different equity partners for different clusters, to raise money for capacity expansion,” it said.

The Transport Ministry hopes to complete the signing of the new OAs with MAHB by end-2018F, and to implement the new airport operating model by early-2019F. 

CIMB Research believes that the economic impact of the new airport operating model will likely be neutral to MAHB. 

“While the likely break-up of MAHB’s airport operatorship monopoly is negative, and the potential construction of LCCTs may reduce MAHB’s revenue collection, the government may be willing to forgo or reduce the quantum of user fees to bolster MAHB’s balance sheet for capex purposes. 

“Also, MAHB is envisaged to be in the driver’s seat to manage the entire process of issuing new equity shares in the various airport clusters,”  it said.

CIMB Research pointed out that Loke said that he was supportive of AirAsia’s efforts to build new LCCTs that will not have aerobridges. 

While the Transport Ministry cannot compel MAHB to build these LCCTs, given the minister’s moral support, the research house thinks that MAHB will more likely than not facilitate the establishment of new LCCTs, which will, of course, work to the advantage of AirAsia and AirAsia X 

These new LCCTs will likely result in lower PSCs, given the minister’s whole-hearted support of MAVCOM’s Regulatory Asset Base (RAB) framework, which will determine aeronautical tariffs from capex, opex and WACC inputs,” it said. 




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