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This article first appeared in The Edge Financial Daily on November 8, 2018

Malaysia Airports Holdings Bhd
(Nov 7, RM8.16)
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During the budget announcement last Friday, the government said that it will set up an airport real estate investment trust (REIT) to securitise the flow of user fee receipts (akin to concession fees), which it receives as a share of Malaysia Airports Holdings Bhd’s (MAHB) Malaysian revenues and sell 30% of the REIT to raise fiscal monies. This proposal has no economic impact on MAHB, except that MAHB may have to pay user fees to the REIT, rather than the government, in the future.

In the same budget, the government noted that it may sell additional units in the REIT to fund future airport capital expenditure (capex) investments. Investors appear to have taken this badly, in our view, fearing that the government will reduce MAHB’s opportunities to invest in capex, which would lead to fewer opportunities to earn more profits under the Regulatory Asset Base (RAB) framework that is scheduled for implementation on July 1, 2019. However, we believe that these concerns are unwarranted since the government has made clear many times that it will prefer the private sector to undertake capex spending on airport infrastructure. As a result, we view the Budget 2019 statement on government capex spending on airport upgrades as merely a backup plan in the event that no private player is willing or able to upgrade airport infrastructure in smaller towns.

Separately, we believe the new aviation levy to be imposed by the government from June 1 next year will be negative for airlines, especially as the increase in the cost of travel may affect demand for flights and may cause airlines to rationalise capacity, which will ultimately be bad for passenger traffic growth, in our view.  Our view is that this risk is also substantially mitigated by the coming implementation of the RAB framework, which will simply raise the aeronautical tariffs on a per pax basis, and which we believe will leave MAHB with the same level of profits. — CGSCIMB Research, Nov 7

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