KUALA LUMPUR (March 19): The recent revision of Malaysia Airport Holdings Bhd’s (MAHB) operating agreements (OA) offers a relief to its capital expenditure but doesn’t significantly impact its earnings, said analysts.

Kenanga Research said while said the OAs ease the company’s capital expenditure (capex) obligations, the financial impact remains immaterial.

As such, Kenanga Research maintained its forecasts, a target price (TP) of RM9.00 and a “market perform” call on MAHB.

The new terms of the agreement between MAHB and the government include several notable transformative procedures. First, it facilitates flexible funding of airport developments, either through government allocations via development expenditure (DE) or by MAHB through any appropriate investment recovery model mechanism, or any other finance model mutually agreed upon by both parties.

Second, it provides for the establishment of the Airport Development Fund (ADF), set up to receive contributions from airport users, the public and airlines to fund future airports’ capital expenditures.

An additional benefit of the agreement is the provision allowing 50% of the passenger service charge (PSC) considered in the user fee calculation to be directed into the ADF. This user fee percentage will be reviewed every three years.

“For illustration purposes, a RM1 billion airport revenue will translate into a RM24 million contribution to the ADF. This is based on PSC revenue making up 40% of total airport revenue and a user fee rate of 12%.

“Only user fees on PSC revenue will be subject to contribution to the ADF and the proposal entails half of these to go into the fund (RM1 billion x 40% x 12% x 50% = RM24 million),” said Kenanga Research.

The agreement also anticipates likely losses due to the slow recovery of air travel post-pandemic.

It allows the airport to recover its losses in RP1 (Regulatory Period 1) via a loss capitalisation mechanism (LCM) from Regulatory Period 2 (RP2).

In terms of other revenue earnings and losses, if the airport earns more than its costs, it retains 10% of the profit but is required to return 90% of the excessive gain to customers.

However, if it earns less than its operating costs, the company bears 10% of the loss but has the right to recover 90% from customers.

The agreements also retains all the marginal cost support sums (MARCS) mechanisms, replacing the MARCS-PSC with an enhanced passenger service charges compensation scheme.

As for valuations, Kenanga Research’s TP of RM9.00 is based on the 22x FY2025F EPS (financial year 2025 forecast earnings per share), which translates into a 40% discount to its peer, the airport of Thailand, driven by market capitalisation disparities.

Kenanga Research expects leisure and business air travel to continue recovering throughout FY2024, with a projected increase of 35% in tourist arrivals to Malaysia. This growth can be attributed to factors like the 30-day visa-free scheme implemented starting December 2023 for Chinese and Indian tourists.

Offering another perspective, MIDF Research stated that under the new OAs, the undertaking of development capital expenditure can be done through several channels, such as introducing project financing from the capital market, using funds offered by the government, implementing the ADF, or by adapting any other bankable finance model.

MIDF Research said that while the agreements will extend MAHB’s authorities to manage and develop the existing 39 airports in Malaysia until Feb 11, 2069, the research house is still waiting for more details, for example on the marginal cost support sum.

It also noted that the latest decision paper released by the Malaysian Aviation Commission (Mavcom) specified that the implementation of the aviation services charges (ASCs) will initiate in June this year.

MIDF Research maintained its existing “neutral” call on MAHB, leaving its TP at RM8.75, awaiting the briefing session on Wednesday (March 20) for more details on the new OAs and land lease agreements (LAs).

MAHB shares were thinly traded as they shed one sen or 0.1% to settle at RM9.11 just before noon break on Tuesday, translating into a market capitalisation of RM15.2 billion.