2 November 2019
Analysts are positive that the Regulated Asset Base (RAB) framework is still in progress and expected to be finalised for implementation by January 1, 2020.
Following a briefing by Malaysian Aviation Commission (MAVCOM) on the RAB framework, the research team at Kenanga Investment Bank Bhd (Kenanga Research) noted that MAVCOm reaffirmed the implementation of the RAB model frame-work led tariff on aeronautical charges or passenger service charge (PSC) for Malaysia Airports Bhd (MAHB).
It also said that MAVCOM has reiterated its stance as a statutory right to set the PSC due to be implemented for the financial year 2020 (FY20) to FY22 with a weighted average cost of capital (WACC) of 10.88 per cent.
Due to the lower capex of RM4 billion (previously RM5 billion) and lowered traffic assumption for 2018 to 2022 compounded annual growth rate (CAGR) of 4.9 per cent (compared with 5.7 per cent in June consultation paper), it noted that regulated revenue per pax is raised from RM42.90 to RM43.50 for regulatory period of year 2020 till end 2022. Bulk of the capex estimated at 70 to 80 per cent is earmarked for KLIA 1 and 2.
“MAHB is well-entrenched because its earnings in the aeronautical segment under the operating agreements are protected from downside.
“A key component under the operating agreements lies in the Marginal Cost Support Sums (MARCS) system which would compensate MAHB for reduction in aeronautical Passenger Service Charge or ‘PSC’ resulting in PSC rate being lower than the benchmark rate as per the OA due to governmental instructions,” Kenanga Research commented.
Aside from that, it pointed out that PSC for all airports other than KLIA 1 and 2 expected to be reduced.
“We are positive since combined KLIA 1 and 2 international accounts for estimated 45 per cent of total passengers which yields are higher. The indicative pre-tax WACC of 10.88 per cent is higher than current airport aeronautical ROA of 5.3 per cent, indicating earnings accretive effect,” it added.
The Visit Malaysia Year 2020 (VMY 2020) is also expected to boost passenger traffic growth as according to MAHB, based on prevailing economic conditions and the airlines seat capacity offered, Malaysia’s passenger traffic in 2019 is expected to grow by 5.4 per cent with international and domestic passenger traffics growing at 2.3 per cent and 8.8 per cent, respectively.
“We also upgrade our expected passenger traffic at KLIA’s main terminal building (MTB) and other airports, to grow seven per cent in 2020 and expect passenger traffic at the KLIA2 to grow eight per cent in 2020 underpinned by tourism activity emanating from VMY 2020,” Kenanga Research said.
On the other hand, MIDF Amanah Investment Bank Bhd (MIDF Research) pointed out that the last major hurdle to resolve is the PSCs for KLIA Main Terminal and klia2.
“We gathered from MAVCOM that the commission has briefed to the prime minister and several other ministers in early October 2019.
“Main outcomes from the briefing include basic concepts and benefits of the RAB framework have been generally understood, and the PSC differentiation between KLIA Main Terminal and klia2 is the remaining issue for resolution,” it said.
It highlighted that one way to resolve the PSC differentiation would be for the Government of Malaysia to table the matter in the cabinet and translate it into a governmental policy in which MAVCOM will have to act accordingly.
All in, MIDF Research said, while aeronautical charges in Malaysia are expected to see an upward trend, components of it such as landing and parking charges remain one of the lowest in Asia.
“Moreover, the additional departure levy imposed on international departing passengers especially for economy class remains lower than regional peers such as Hong Kong, Thailand and Australia.
“As such, we opine that the current momentum of passengers’ traffic will continue to provide a strong base for incremental revenue generation moving forward. This will be supported by accommodative visa policies in Malaysia for tourists from China and India which will temper the pressure from the impending international departure levy,” it said.
Other growth factors would include direct connectivity seen from international airlines flight straight to locations such as Langkawi.
“As such, we strongly believe that MAHB passenger numbers can surpass the 100 million mark in 2019, while maintaining a relatively conservative growth rate of 3.5 per cent which translates to RM102.5 million passengers,” it added.
MIDF Research maintained its ‘buy’ call on MAHB while Kenanga Research upgraded its rating to ‘outperform’.