MAHB shares fall 5.7% as Mavcom introduces new regulations

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KUALA LUMPUR (Feb 13): Malaysia Airports Holdings Bhd's (MAHB) share price came down in active trade today as the Malaysian Aviation Commission (Mavcom) introduced two major regulations that analysts believe will negatively affect the company.

The counter was down 52 sen or 5.7% at RM8.60 as at 3.15pm, with 19.9 million shares traded. It was the seventh most actively traded stock.

Last Friday, Mavcom released an information paper on the development of a new Regulatory Asset Base (RAB) framework for aeronautical tariff setting, and a new Quality of Service (QOS) scheme to ensure good service quality for all commercial airports in Malaysia.

CIMB Investment Bank Bhd research analyst Raymond Yap said in a note today that the implementation of the new regulations may negatively affect MAHB.

"The fundamental philosophy behind the QOS and RAB frameworks is to ensure that the airport operator, as a natural monopoly, does not take advantage of its superior competitive position vis-à-vis airport users, to either offer substandard service quality or charge exorbitant tariffs.

"This means that MAHB may incur capex costs to reduce the risk of financial penalties under QOS scheme, and will have to be content with return on invested capital (ROIC) that merely meet, but never exceed, its weighted average cost of capital (WACC) under the RAB framework," he said.

Yap added that MAHB also has the risk of paying penalties of up to 5.03% of aero revenues at KLIA and klia2 in the event that the two airports fail to meet minimum thresholds of service quality under the QOS framework.

The research house has cut its discounted cash flow valuation of MAHB, lowering the target price to RM7.30, and downgrading its call on the stock from 'add' to 'reduce'.