PETALING JAYA: Malaysia Airports Holdings Bhd’s (MAHB) share price soared as much as 9.21% today following the release of Malaysian Aviation Commission’s (Mavcom) second consultation paper on aeronautical charges framework.
The stock opened higher today at RM8.10 from Tuesday’s closing price of RM7.93, and surged to an intra-day high of RM8.66. It closed 7.31% higher at RM8.51 with 12.97 million shares traded, making it the top gainer on Bursa today.
On Tuesday, Mavcom released its second consultation paper in which it has recommended a 10.88% pre-tax weighted average cost of capital (WACC) for MAHB under the Regulated Asset Base (RAB) framework.
The paper also includes MAHB’s proposed changes to the passenger service charge (PSC) and the introduction of a transfer PSC for passengers on transit.
“We are encouraged with Mavcom’s second consultation paper as the key essence lies in the details for the implementation of RAB in January 2020,” Kenanga Research said in its report today.
“We believe that the most critical points for MAHB would be the three-year cycle for first regulatory period (RP1) of RAB as the shorter period allows both MAHB and Mavcom to fine tune aeronautical charges in the second regulatory period should there be any huge variation on their capital expenditure (capex) allocation and traffic forecasts,” it said.
A second critical point for MAHB is the 10.88% proposed rate of return, which Kenanga Research views as positive for MAHB as the rate is at the higher end of the 9-11% rate of return proposed in the first consultation paper.
“Most importantly is the approved capex requirement by Mavcom instead of MAHB’s proposal which we believe is critical for check and balance in safe guarding other stakeholders’ interest,” it added.
To recap, MAHB included a capex plan of RM10 billion for the period of 2020-2022 under RP1, but only RM5 billion is approved by Mavcom.
“We are excited with the proposed implementation of RAB under the purview of Mavcom as it promotes better transparency in aeronautical charges.
“While the second consultation paper is non-conclusive at this juncture, we believe that it is positive for MAHB should they be able to execute the approved capex plan of RM5 billion under RP1 upon implementation of RAB based on weighted average cost of capital of 10.88%, which we would look to upgrade our FY20 earnings given the potential return on assets is higher than our current estimates,” it said.
Kenanga Research maintained its “outperform” call on the stock with an unchanged target price of RM8.70.
It noted that the potential revision in PSC would help cushion the higher operating costs, which may see the research house reviewing its valuation should there be no major changes to the second consultation paper.
Meanwhile, MIDF Research has reiterated its “buy” call with an unchanged target price of RM8.80. It said that the latest changes in the paper indicate the certainty of implementing the RAB framework according to schedule by January 2020.
“In the short term, we believe that the impending departure levy would be tempered by accommodative visa policies for tourists in China and India. Other growth factors would include direct connectivity seen from international airlines flight straight to locations such as Langkawi,” it said in its report.
It “strongly” believes that MAHB’s passenger numbers can surpass the 100 million mark this year, while maintaining a relatively conservative growth rate of 3.5% which translates into 102.5 million passengers.
On the PSC rates, MIDF Research said an additional revenue of RM2.2 million could be collected from transit passengers if MAHB’s proposed rates are applied, which could buffer any potential downside risks from a lower-than-expected return from the RAB framework.
