Travellers in queue to check in at klia2
KUALA LUMPUR: CIMB Research has downgraded Malaysia Airports Holdings Bhd
(MAHB) to “hold” from “add” previously with a lower target price of RM6.80 due to higher risk profile following the announcement by Malaysian Aviation Commission (Mavcom).
Mavcom announced that starting from Jan 1, 2017, domestic passenger service charge (PSC) will be standardised at RM11/pax for all airports, up from RM9 at KLIA Main Terminal Building (MTB) and RM6 at klia2.
Meanwhile, intra-Asean travel will attract a new PSC of RM35 per pax for all airports, up from RM32 at klia2, but down from RM65 at MTB. Non-Asean international travel will be charged RM73 per pax at MTB, up from RM65; the same will be charged RM50 per pax at klia2 on Jan 1, 2017, rising to RM73 on Jan 1,2018, up from RM32 now.
CIMB said the to-be-introduced Asean tariff was a step-down from current tariff at KLIA MTB.
It added that even though PSC rates for other categories will be raised, MAHB will likely struggle to deliver return on equity that are above its cost of equity, which CIMB estimated to be
9.7%.
“If Mavcom no longer follows the schedule of 5-yearly PSC rate hikes and the MARCS scheme is abandoned, the uncertainty over future cashflows will increase.
“We downgrade to ‘hold’ and lower our DCF-based target price given the higher risk profile, even as we raise FY18F earnings for the new tariff structure,” CIMB said.
It said its SOP calculation had been reduced to RM6.80 from RM7.21 previously, principally because it had removed the present value of cashflows from 2035 to 2069, which is beyond the current concession.
In the past, CIMB had assumed that the concession would be extended by a further 35 years on the same terms and conditions, as requested by MAHB.
“However, given the protracted nature of the discussions and given that the extension is unlikely to materialise soon, we believe that it is more realistic to remove the value of the extension period for now,” CIMB said.
The research house had also assumed that the present value of cashflows from 2017 to 2034 (being the end of the concession) will increase from RM8.7bil to RM11.7bil, mainly on the back of an assumption of a 30% hike in landing and parking charges spread over three years starting from Jan 1, 2018 and because it assumed that PSC rate hikes will, in the future, happen annually, rather than once in only every five years.
CIMB said the clear winner from the latest PSC revision was Malaysia Airlines while main loser is AirAsia X (AAX).
On Jan 1, 2017, MAS’s ASEAN offerings will become cheaper and, by Jan 1, 2018 MAS will have fully closed the competitive gap with the low cost carriers at klia2.
“It was almost as if Mavcom had formulated policy with a focus on helping the national carrier. The airline suffering the greatest will be AAX but the impact on AirAsia is quite modest,” CIMB said.
The research house with the lower Asean tariff, it believed that MAHB would lost its ability to claim marginal cost support in the future since the total revenue collection is unchanged, although this is subject to debate.
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