PSC cut may not be a good reason to dump MAHB shares

PSC cut may not be a good reason to dump MAHB shares
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KUALA LUMPUR (Aug 30): In a knee-jerk reaction to the news on cutting the passenger service charge, investors just ignored the 86% leap in quarterly profit reported by Malaysia Airports Holdings Bhd (MAHB) this afternoon and dumped its shares.

The immediate concern is that MAHB’s earnings will be affected substantially given the Ministry of Transport announced that the PSC on passengers traveling beyond Asean will be reduced to RM50 across all airports, except for Kuala Lumpur International Airport (KLIA).

Interestingly, the revised rate is the same as the amount that AirAsia Group Bhd and AirAsia X Bhd had collected from their passengers before the two low cost carriers started collecting RM73 on Aug 9 onwards.   

Back on MAHB, nonetheless, analysts commented that the PSC cut should not be the reason to sell the shares simply because the airport operator’s earnings will not be affected at all.

Under the operating agreement that it signed with the Government 10 years ago, MAHB is entitled to a benchmark PSC.

If the PSC charged is set below the benchmark, MAHB will recover the difference by paying a proportionally lower user fee to the Government.

In short, MAHB, which operates 39 airports across the country, will pay less user fee to the Government to make up for the shortfall. It is the Government that will lose out by cutting the PSC as the user fees it will receive from MAHB will shrink.

“MAHB is pretty much isolated from the PSC cut. It is unlikely to have any impact on its earnings,” said an analyst who tracks the stock.

MAHB’s share price plunged as much as 50 sen or 5.85% to RM8.05 today after the news on the PSC cut. The stock managed to regain some lost ground to close at RM8.23, down 32 sen or 3.74% — the second biggest fall in terms of percentage this year.  

To put things in perspective, of the 99.03 million passenger movements in all airports operated by MAHB last year, 60.55% (or 59.96 million) of whom were in KLIA and klia2, according statistics provided by MAHB.

klia2 alone accounted for 31.86 million or 32.17% of the tally, while KLIA contributed 28.10 million or 28.38%.

Among the 99.03 million passengers, some 26.18 million of them (or 26.4%) were international travellers for non Asean destinations. The number of international travellers using KLIA was 13.98 million (or 53.4%), the remaining 12.2 million (46.6%) were using other airports including klia2.

On a back of envelope calculation, the RM23 reduction will mean the collection would decline by an estimated RM280.6 million based on 12.2 million international travellers.

The announcement on PSC cut for international travellers has in fact stolen the limelight from MAHB’s latest quarterly financial results which was released at the noon break.

The group achieved an 86% jump in net profit to RM160.08 million for the second quarter ended June 30, 2019, from RM86.12 million a year earlier on the back of higher revenue. Quarterly revenue grew to RM1.26 billion from RM1.15 billion previously. Earnings per share was higher at 8.78 sen versus 4.33 sen a year earlier.

The board has declared an interim dividend of five sen per share, payable on Oct 1.

The airport operator’s quarter results came in stronger than market expectations, according to analysts.

MAHB shares price has been trending upwards in recent months from the low of RM6.52 in mid-April and it hit a high of RM8.82 on July 10 amidst the expectation that the implementation of Regulated Asset Base Framework (RAB Framework) on PSC will augur well for the group and provide better earnings visibility.

More importantly, MAHB is assured of its return for the capital expenditure (capex) it incurs to upgrade and expand the airports under its management.

Some said today’s selling could also be partly due to the fact that the stock price has rallied for a while. The PSC cut provided an excuse to take some profit.