KUALA LUMPUR: Affin Hwang Capital Research is retaining its HOLD rating on Malaysia Airports (MAHB) with a lower sum-of-parts derived price target of RM7.50 (from RM8.50).
It said on Thursday the lower SOP was after cutting its 2020-21E earnings forecasts by 8%-9% in anticipation of a prolonged deferment in the Regulatory Asset Base framework (RAB) implementation, where there is also a high risk of cancellation.
Operationally, the key earnings drivers (passenger movement growth, cost efficiency) remain positive and should support MAHB’s 2020-21E earnings growth; however, the protracted discussions on operating agreements (OAs) remain a risk to earnings.
“MAHB’s share price has fallen by 18% over the past three months partly due to this. At 19 times 2020E PER, MAHB’s valuation is comparable to global peers and looks fair, ” it said.
Affin Hwang Capital Research said based on the proposed CAAM-Mavcom merger and Mavcom’s press release, where its executive chairman Dr Nungsari Ahmad Radhi said he will now focus on the welfare of the staff and a responsible handover, “we expect the implementation of the RAB to be deferred for the foreseeable future and see the risk of an outright cancellation as also high”.
Separately, the discussions on OAs between MAHB and MOT are not forthcoming – the recent resignation of MAHB’s CEO, Raja Azmi, may further delay the finalisation/ signings of the OAs.
Under the prevailing OAs, the research house now expects the Malaysian PSC to stay flat in 2020-21E and MAHB to continue paying a rising user fee.
“While these are not detrimental to MAHB’s profitability, investors (including us) were expecting a higher financial return under the RAB framework.
“Elsewhere, MAHB will likely defer its infrastructure upgrades (ie, baggage handling system, Aerotrain at KLIA) and this may affect its operational efficiency, ” it said.
Affin Hwang Capital Research cut its 2020-21E EPS by 8-9% after reversing the financial impact of the RAB framework.
This includes lowering its PSC and capex forecasts and raising the user fee projections.
Operationally, MAHB’s business outlook remains healthy; it expects higher passenger movements, good cost efficiencies and lower finance costs for the Turkey business to drive a 3%-9% growth in MAHB’s 2020-21E EPS.