2 November 2019
Research firms are placing positive views on Malaysia Airports Holdings Bhd’s outlook following the update on the status of Regulated Asset Base (RAB) framework where the 10.88 per cent pre-tax weighted average cost of capital (WACC) will be maintained.
The update was made during analyst briefing organised by the Malaysian Aviation Commission (Mavcom), recently.
“We believe the news is positive, as it has reduced the risk that WACC will be lowered,” said RHB Research which kept its ‘buy’ recommendation on MAHB.
The regulator indicated that WACC for the 2020-2022 framework would have a lower capital expenditure (capex) of RM3.99 billion from RM5 billion proposed in the Second Consultation Paper published earlier on June 18.
Due to the lower capex and lowered traffic assumption for 2018-2022 compounded annual growth return of 4.9 per cent (versus 5.7 per cent in June consultation paper), Mavcom will increase the regulated revenue per pax to RM43.50 from RM42.90 for the regulatory period 2020-2022.
The bulk of the capex estimated at 70-80 per cent is earmarked for Kuala Lumpur International Airport (KLIA), mainly for aerotrain replacement, baggage handling system replacement, terminal optimisation, taxiway loop and pavement repairs; as well as for Kuala Lumpur International Airport 2 (klia2).
MIDF Research believed the lowered capex is more manageable as it would lessen the burden on MAHB net gearing, which stood at 0.4 times as of June 30, 2019.
“A lower capex will translate into a lower return of capital derived by applying the WACC of 10.88 per cent proposed by Mavcom to the RAB closing balance for a particular year,” the research firm said in a note.
It has maintained the ‘buy’ recommendation on MAHB with an unchanged target price (TP) of RM9.43 per share.
AllianceDBS Research, which also kept its ‘buy’ rating at TP of RM9.75 on the airport operator, said based on the second consultation paper, MAHB’s earnings could increase by 8.0-9.0 per cent.
Meanwhile, the better projection for passenger traffic growth in 2019 has led Kenanga Research to revised upward its 2020 overall passenger traffic growth to 6.4 per cent from 4.5 per cent set previously.
The research firm has raised its financial year 2020 estimate net profit forecast by seven per cent by raising its passenger traffic.
Correspondingly, Kenaga Research also raised its TP on MAHB to RM9.50 from RM8.70 per share, while maintaining the ‘market perform’ call on the airport operator. As at 10.40 am, MAHB shares on Bursa Malaysia were flat at RM7.92 with 53,300 shares changing hands. – Bernama