HLIB Research expects the group to record stronger earnings in the financial years 2024-2025.
PETALING Jaya: The new operating agreement (OA) that Malaysia Airports Holdings Bhd
(MAHB) signed with the government earlier this week is crafted to offer some safeguards to MAHB’s earnings and cash flow, says Maybank Investment Bank Research (Maybank IB).
Following an investor briefing by the airport operator on the new OA, the research firm said three things caught its attention in regard to this.
One is that MAHB will be compensated fully if the passenger service charge (PSC), which is paid by departing passengers, were reduced going forward.
Secondly, the user fee rates can be reviewed every three years instead of being consistently raised by 25 basis points per year.
MAHB now pays about 13% of total revenue to the government.
The last takeaway from the briefing is that 50% of the user fee charged on PSCs, which comes to around RM100mil per year, will go to an Airport Development Fund (ADF) controlled by the government.
“Subject to government approval on a case-by-case basis, MAHB can tap into the ADF to defray its capital expenditure (capex),” said Maybank IB.
MAHB signed the new OA with the government on Monday.
Before this on March 12, 2024, the Malaysian Aviation Commission (Mavcom) announced that it will restructure MAHB’s aeronautical charges from June 1, 2024 to Dec 31, 2026 under Regulatory Period (RP) 1.
Key to this restructuring is that transfer PSCs will be introduced, while landing and parking charges will be raised by 6.8%, 2.4% and 2.4% on June 1, 2024, Jan 1, 2025 and Jan 1, 2026, respectively. The research firm said the restructuring is earnings neutral to MAHB.
Going forward, all eyes will be on Mavcom’s third consultation paper that will guide on the regulatory asset base (RAB) model that MAHB will employ under RP 2 beginning from Jan 1, 2027.
“The key questions are what return on capital (ROC) will MAHB be allowed to employ to determine any regulatory loss (as opposed to accounting loss) that it may incur in RP1 that can be recovered during RP2 and the ROC that MAHB will be allowed to employ in RP2 to set aeronautical charges. Mavcom had previously proposed 11.4%.”
Meanwhile, Hong Leong Investment Bank (HLIB) Research said the finalisation of the new OA and RP1 had effectively strengthened MAHB’s position in the development and management of airports in Malaysia with earnings certainty for the next 35 years.
It expects the group to record stronger earnings in the financial years 2024-2025.
“MAHB will benefit from the higher aviation services charges (including PSC) revenue and cash flow, while benefiting from the recovery of air travel and improving international passenger mix for both Malaysia and Turkiye’s Istanbul Sabiha Gokcen International Airport operations.”
MAHB is now being tasked to undertake the necessary airport development capex (which was previously funded by the government), subject to agreed pre-tax positive fair and reasonable returns.
According to HLIB Research, MAHB had proposed a capex of RM5.2bil based on the 2019 submission.
The new OA now allows flexibility of funding via government or MAHB’s own funds.
Notably, the Penang International Airport development will be the first under such terms, it added.
In its report, HLIB Research reaffirmed its “buy” recommendation on MAHB with a higher target price of RM10.25, from RM9.80.
As for Maybank IB, it maintains a “hold” rating and RM8.91 target price on the stock.
