Salient points of RAB

The briefing organised by Malaysian Aviation Commission (MAVCOM) yesterday offered greater insight into the new regulatory asset base (RAB) framework, but it failed to address our concern over its implementation. Nevertheless, we acknowledge the commissioner’s effort in aligning the interest of all affected parties, including the government, airport and airline operators and consumers.

Salient updates about the RAB framework include:

1. The approved capex under the RAB for regulatory period 1 (RP1: referring to 2020-2022) has been reduced to RM3.99bn from RM5.52bn mentioned in the 2nd consultation paper. Most of this capex will be allocated to KLIA and KLIA 2 (RM2.7bn) and Penang International Airport (RM740mn);

2. The estimation of staff cost for RP1 is 0.9% lower than previous estimates;

3. Downward adjustment in passenger movements forecast from a 2018- 2022 CAGR of 5.7% to 4.9%;

4. Other variables that would affect the PSC for RP1 such as the pre-tax WACC of 10.88%, the adoption of price cap method and the grouping of tariff (refer to report dated 5 July 2019), and introduction of transfer PSC, remain unchanged;

5. The changes above will results in the blended PSC to increase slightly to RM43.5 per departing passenger versus earlier estimates of RM42.9. The increase is mainly due to the reduction in passenger forecast for RP1.

6. Without details, MAVCOM indicates that PSC for all airports other than Tier 1 (KLIA and KLIA2) will be lower. Also, aircraft parking and landing fee will be higher for RP1.

Mavcom’s view about MoT’s alternative model

With regards to government’s views on the RAB framework, we understand from the commissioner that the Prime Minister, Transport Minister, Finance Minister and other ministers had been briefed about the framework with final PSC outcomes on 8 October 2019. Generally, the ministers are fully aware of the implications. According to MAVCOM, the government wishes not to pay any subsidy in the implementation of RAB. It also wishes there will be no reduction in user fee as a result of RAB implementation. Another main issue that the government has is PSC differential between KLIA and KLIA2.

A few weeks after the briefing to the government, the Transport Minister sprang a surprise by saying that the Ministry of Transport (MoT) is looking at alternatives, besides the RAB framework, for the future development of domestic airports. This has cast doubts on the implementation of RAB. As far as MAVCOM is concerned, the RAB work remains on-going and a new PSC will be implemented on 1 January 2020. According to commissioner, section 46 of Malaysian Aviation Act has clearly empowered MAVCOM to set charges for aviation services. Whether its decisions can be overruled by the government, there is no direct answer to that, but a general belief is that a cabinet approval is needed for that to happen.

Our view

We still see a major roadblock to RAB implementation given the conflicting signals from the government after the statement made by the MoT. Although we can be certain that MAVCOM will go ahead with the RAB framework and will announce the new PSC soon, the uncertainty is still lingering for the government to accept the RAB and the final PSC outcomes.

Forecast & recommendation

No change to our earnings forecast. We maintain MAHB’s DCF-derived fair value at RM8.58/share and reiterate our Hold recommendation.

Source: TA Research - 1 Nov 2019