Investment Highlights

• MAVCOM proposed a lower nominal pre-tax WACC of 10.9% vs. MAHB’s proposed nominal pre-tax WACC range of 12.7% to 14.0% in MAVCOM’s latest consultation paper

• Revision to PSCs based on the latest airport groupings were laid out based on three options

• Both MAVCOM and MAHB proposed an introduction of PSC for domestic and international transit passengers

• Our preliminary analysis indicates that MAHB would recognise an additional RM2.2m worth of PSC revenue from transit passengers(excluding MARCS and revision of normal PSCs)

• All in, the latest changes proposed in the consultation paper signals the certainty of the RAB framework to be implemented

• Maintain BUY with an unchanged TP of RM8.80 per share

The issue of WACC in the RAB framework. The Malaysian Aviation Commission (MAVCOM) released its second consultation paper for the framework of aeronautical charges. With regards to the regulatory based asset framework, MAHB submitted a nominal pre-tax WACC range of 12.7% to 14.0%, MAVCOM proposed a lower nominal pre-tax WACC of 10.9%. We believe the function of WACC here is a comparative benchmark for the setting of the rates and returns.

PSC rates according to grouping. Three options were also laid out by MAHB for the passenger service charges for all airports; (i) equalising ASEAN and non-ASEAN PSCs while keeping the domestic airports for PSCs unchanged, (ii) equalising ASEAN and non-ASEAN PSC but raising the domestic PSC from RM11 to RM14 per passenger and (iii) differentiating PSC ASEAN and non ASEAN PSC (for KLIA, klia2 Penang, Kota Kinabalu, Langkawi and Subang) combined with raising the domestic PSC for all airports from RM11 to RM14 per passenger. The proposed revisions in PSC charges are based on the latest announcement on the OA laid out the terms for the extension which includes the introduction of four new OAs for; (i) KLIA, (ii) Designated Airports in Peninsular Malaysia, (iii) Sabah Airports and (iv) Sarawak Airports.

Proposed introduction of PSC for transfer/transit passengers. In addition to the revision of the PSCs according to groupings, MAVCOM and MAHB have both proposed a PSC for all transit and transfer passengers for up to 24 hours. MAHB has proposed a PSC of RM3 and RM17 for domestic and international transfer passengers respectively for all three options laid out. Meanwhile, MAVCOM has suggested a slightly higher rate of RM5 and RM20 for domestic and international transfer passengers.

Source: MIDF Research - 19 Jun 2019