4 September 2019
The lower PSC collection for non-KLIA international flights is neutral to MAHB’s financial performance, says research house
By SHAZNI ONG / Pic By BLOOMBERG
Malaysia Airports Holdings Bhd’s (MAHB) shares rose on expectations that the Malaysian Aviation Commission (Mavcom) will announce new passenger service charge (PSC) rates in the next few weeks, due for implementation effective January 2020.
MAHB’s shares increased 2.67% or 22 sen to RM8.45, valuing the airport operator at RM14.02 billion.
In a statement last Friday, Mavcom noted that the comprehensive study of methodology and the charges for aviation services, including the PSC, are in the final stages of completion.
The commission said it would introduce the Regulated Asset Base (RAB) framework to determine airport charges.
The RAB methodology is a globally recognised cost-based mechanism and provides a sustainable funding model for airports, while also taking into account the impact on airport users.
The commission’s statement comes after the Ministry of Transport announced earlier that the PSC imposed on international travellers — excluding those travelling in Asean — at all airports besides the Kuala Lumpur International Airport (KLIA) will be reduced by RM23 to RM50 from October.
RHB Research Institute Sdn Bhd in a note yesterday stated that the lower PSC collection for non-KLIA international flights is neutral to MAHB’s financial performance.
“As the implementation will be done via contra user fee method, the earnings impact is neutral to MAHB as the lower PSC collection will be neutralised by a lower user fee to be paid to the government.
“In financial year 2018 (FY18), MAHB paid a user fee of RM417.6 million to the government, and hence, this expense is expected to be lowered by the same amount of the lower PSC collected,” it said.
It maintained a ‘Buy’ call with unchanged earnings forecasts and a target price (TP) of RM9.20, noting that Mavcom will announce the new PSC this month (for implementation on Jan 1, 2020).
“This would set the clarity for MAHB’s sustainable earnings going forward. We believe the stock is still attractive at the current level of FY20F (forecast) P/E (price-to-earnings ratio) of 23.2 times or -0.85SD (negative standard deviation) valuation with sustainable earnings improvement visibility,” RHB Research added.
Risks to that call include weaker than expected passenger traffic, unfriendly RAB framework outcome, negative outcome from ongoing court cases and a sharp depreciation of the Turkish lira, it added.
MIDF Research, in a note yesterday, stated that it expects the new PSC rates to be reflective of the service levels of respective airports under the RAB framework and hence, there could be a more favourable PSC for airports, especially for KLIA2.
“We believe this would be an additional boost to the current travelling trend as we opined tourism activity remains intact even if the PSC for destination beyond Asean remains at RM73 for the said airports,” it said.
In terms of financial impact, MIDF Research said PSC revenue collection for MAHB will not be affected as MAHB is entitled to a benchmark PSC.
“MAHB remains bounded by the benchmark rates set out in its opera- ting agreement with the government, as it is still being compensated via the marginal cost support sum (MARCS).
“It is notable that the PSC of RM50 for international departures beyond Asean ex-KLIA is still higher than the RM40 benchmark PSC rate for KLIA2, but lower than the RM80 benchmark PSC for other airports ex-KLIA,” it said.
Viewing from a net overall basis, MIDF Research noted that MAHB usually experiences a shortfall of PSC compared to the benchmark rates which are to be offset by the MARCS mechanism.
Another possible option for MAHB is an implementation of the contra user fee mechanism which was previously applied to the Langkawi International Airport, whereby an offset of lesser user fee cashflow to the government over a three- to four-year period, it said.
MIDF Research maintained its ‘Buy’ stance and unchanged TP of RM9.43 on MAHB adding 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 for tourists from China and India which will temper the pressure from the impending international departure levy.
“Other growth factors would include direct connectivity seen from international airlines flight straight to locations such as Langkawi.
“We strongly believe that MAHB’s passenger numbers can surpass the 100 million mark in 2019, while maintaining a relatively conservative growth rate of 3.5%, which translates to RM102.5 million passengers,” it said.