■ We upgrade MAHB from Hold to Add, as we expect re-rating catalysts and potential upside surprises in 2H23F, plus dividend yield of 4.5% in FY24F.

■ Commercial rentals in Malaysia are likely to rise strongly in FY24F, while the new OA and MAVCOM’s new tariffs may also surprise on the upside.

■ We raise our SOP-based TP to RM7.76, as we roll-forward to end-CY24F, and factor in the government’s contribution to the Airport Development Fund. 

Commercial rental waivers and discounts slated to end in FY24F

MAHB said that in 1H23, an average of only 67% of the tenanted commercial lots across all its airports in Malaysia were actually open for business, and out of goodwill, MAHB waived the rentals on 33% of the tenanted lots that remain closed. Of the tenants that are paying rental, we estimate that MAHB gave a 30% discount on the basis that passenger traffic had not fully recovered to pre-Covid levels (see pg.6 for details). In essence, MAHB only collected 47% of the rentals that it was entitled to collect during 1H23, with the remaining 53% lost to both rental waivers or discounts, in our view. The good news is that MAHB expects all of these shops to be open by the end of this year, hence there should be zero rental waivers and discounts in FY24F. Consequently, we forecast rental and commercial revenues to rise 39.5% yoy to RM782m in FY24F, or 14% higher than FY19 due to MAHB’s successful ‘commercial reset’ programme which has permanently increased base rentals, contributing a 27 sen hike to our SOP valuation in this report.

Re-rating catalysts over the next four months from new OA…

In addition to our expectation for strong 2H23F results due to continuing passenger traffic recovery, stronger commercial rental collections, and higher Eraman duty-free sales, we also expect several potential positive catalysts from the regulatory side. The government is likely to sign the new OA with MAHB by end-2023F, and MAHB’s request is for the Benchmark PSCs under the 2023 OA to be revised on a 3-yearly basis, rather than on the current 5-yearly basis in the 2009 OA; we have reflected this through a 39 sen hike to our SOP valuation. In addition, we are bracing ourselves for a possibly better-than-expected increase in Benchmark PSCs from 1 Jan 2024F than the 8.5% that we have modelled; a 1% pt uplift can raise our SOP valuation by 1.7%. There is also earnings upside if the ‘user fee’ formula payable to the government is modified, reduced or capped. The government will also assist MAHB in its capex spending programmes through the Airport Development Fund (ADF) in FY24F, which contributed to a 29 sen increase to our SOP valuation.

…and new aeronautical charges from MAVCOM

Meanwhile, MAVCOM should be releasing its Third Consultation Paper on aviation service charges by end-Sep 2023 and investors may be positively surprised by possibly higher tariff increases for aircraft landing and parking charges from 1 Jan 2024F compared to the proposal in the Second Consultation Paper of 6.89% in 2024F, 2.3% in 2025F, and 2.4% rise in 2026F. Downside risks include higher-than-expected opex as well as a slower-than-expected pick-up in travel in FY24F and beyond due to airline capacity constraints.

Source: CGS-CIMB Research - 13 Sep 2023