Post attending RAB update session with MAVCOM, we believe there are still uncertainties towards the effective RAB implementation in Jan 2020. There are disagreements between the Govt and MAVCOM in relation to RAB and PSC. While MAVCOM reaffirmed its commitment in RAB implementation and its statutory power in setting PSC, the commission is unable to comment on the Govt’s contradictory position. Furthermore, the impending MAS restructuring and VMY2020 may also affect the Govt’s decision. Maintain HOLD on MAHB with unchanged DCFE based TP: RM7.80, given ongoing uncertainties of RAB.

Govt vs MAVCOM. It was revealed that the Govt is not agreeable to the rates of PSC (Passenger Service Charge) equality between KLIA and KLIA2 that was proposed by MAVCOM. MAVCOM clarified that it is being statutory empowered under s.46 of Act 771 to determine the PSC and not Ministry of Transportation (MoT), despite the latter owning the airport assets. However, MAVCOM is a commission under the purview of MoT. Furthermore, MAVCOM is unable to comment on its possible fate of dissolution or merger with CAAM (Civil Aviation Authority of Malaysia). MAVCOM reiterated the importance of an independent aviation regulatory body to ensure sustainability of the industry with level playing field for all stakeholders.

Implementation of RAB. MAVCOM reaffirmed its commitment in the targeted effective implementation of RAB on 1 Jan 2020, which does not need to go through Cabinet approval. However, MAVCOM will need to first resolve the issue of PSC before finalising the RAB structure. Furthermore, there is currently lacking 1 board member (from MoT) to meet the minimum 5 members quorum to vote for the approval of RAB implementation. Should the RAB get implemented on a later date, MAVCOM will consider the necessary adjustments in ensuring RAB remains intact.

Update on RAB. Pre-tax WACC still remains at 10.88% under regulatory period 2020-2022 (RP1) with approved lower capex of RM3.99bn (vs RM5.10bn in June 2019 consultation paper). Hence, the projected return on capital (pre-tax WACC) has also been lowered to RM3.2bn (vs. RM3.4bn in June). Based on a lower assumed passenger traffic CGAR growth of 4.9% under RP1 (vs. 5.7% in June), the average price cap proposed has increased to RM43.5/departing pax (vs. RM42.9/pax in June).

PSC rate. Network approach was adopted to set the PSC for the different airports, with introduction of new PSC category for transfer passenger. The airports will be categorised into 5 tiers. Except for Tier 1 (for KLIA/KLIA2), all other tiers will enjoy lower PSC. There is also likely an increase in aircraft landing and parking charges.

Capex spending. The approved RM3.99bn under RP1, is mainly provided for KLIA (RM2.7bn) and PIA (RM0.7bn). However, MAVCOM is unable to comment on the previously proposed AREIT as well as MoT’s recent intention of exploring other alternatives (beside RAB) and adopting public-private partnership model for airport operations and developments moving forward, which may pose risks for MAHB’s potential in capex spending to enlarge its asset base and improve its earnings.

Forecast. Unchanged.

Maintain HOLD, TP: RM7.80. We maintain HOLD recommendation on MAHB with unchanged DCFE-derived TP of RM7.80. There are still uncertainties with RAB framework as well as its implementation, given the appeared public disagreements between MoT and MAVCOM. While MAVCOM stands firm on the proposed RAB and PSC, it seems to be unclear of the Govt’s view. Furthermore, the proposed RAB and PSC may also affect the impending MAS restructuring exercise and success of Visit Malaysia Year 2020 campaign.

Source: Hong Leong Investment Bank Research - 1 Nov 2019