Analysts: RAB framework hanging in the balance
KUALA LUMPUR: Uncertainties over the Regulatory Asset Base (RAB) framework which has yet to be implemented makes it hard for analysts to impute this into their earnings model for airlines and airport operator Malaysia Airport Holdings Bhd (MAHB).
Kenanga Investment Bank Bhd (Kenanga Research) noted that previously, the Malaysia Aviation Commission (Mavcom) reaffirmed the implementation of Regulated Asset Base (RAB) model framework-led tariff on aeronautical charges or Passenger Service Charge (PSC) for MAHB.
It reiterated its stance of having statutory right to set the PSC due to be implemented for FY20 to FY22 with a weighted averate cost of capital (WACC) of 10.88 per cent.
Nevertheless, all is up in air since the government announced the merger between Mavcom and the Civil Aviation Authority of Malaysia (CAAM) on December 11 last year. The Ministry of Trnasport has confirmed that the Cabinet has decided to dissolve Mavcom and transfer its functions to CAAM, possibly pu ing a brake to the implementation of RAB.
“Previously, under the RAB, a capital expenditure of of RM4 billion and lowered traffic assumption for 2018-2022 compounded annual growth rate (CAGR) of 4.9 per cent, versus 5.7 per cent in June consultation paper.
“Also, regulated revenue per pax is raised from RM42.90 to RM43.50 for regulatory period of year 2020 till end 2022. The bulk of the capex estimated at 70 to 80 per cent was previously earmarked for KLIA and klia2.
“The implementation of RAB in early-2020 is the key re-rating catalyst; if this falls through, we expect MAHB to negotiate for higher MARCS compensation.
“However, despite the uncertainties, we believe a delay in the RAB framework would delay expansion needs for some airports including KLIA’s main terminal involving baggage handling and aero trains.”
Separately, MIDF Amanah Investment Bank Bhd (MIDF Research) said a delay in the RAB will likely hamper expansion plans for Penang and KLIA Main Terminal.
“While the MAHB’s earnings is expected to grow by above 12 per cent y-o-y in FY20 under the RAB framework, earnings growth under the existing operating agreement is still estimated to grow at a tune of 9.3 per cent y-o-y next year driven by robust passenger growth.
“Overall, we opine that a need for a proper funding framework that links capital expenditure to aeronautical charges still exists. Although a delay in the RAB framework is an impending risk, we opine that there would be sufficient mechanisms for MAHB to recoup whatever charges and returns that will be set.”
Meanwhile, passenger growth is expected to remain favourable in FY20 especially with tourism initiatives such as the Visit Malaysia Year 2020 (VMY2020) campaign coming into play.
MIDF Research believes the positive trend in passenger growth in previous years will continue in 2020 especially for the international sector which makes up slightly more than 50 per cent of the passenger mix for MAHB’s Malaysia operations.
“RM1.1 billion has been allocated to Ministry of Tourism, Arts and Culture including RM90 million to drive awareness, promotions and programmes for the VMY 2020 campaign.
“As such, we expect the commencement of VMY 2020 in addition to the Malaysia Year of Healthcare Travel to give a boost in terms of passenger traffic at airports under MAHB with tourist arrivals forecasted to reach 30 million versus 28 million for FY19,” it said in its 2020 sector outlook.
Historically, MIDF Research observed that the Visit Malaysia Year campaign held in 2007 and 2014 saw passenger growth of above four per cent year on year (y-o-y).
“Hence, we are forecasting total passenger traffic to hit 107 million passengers in FY20, representing a four per cent yo-y growth a er considering the high base of above 100 million we are expecting for FY19.”
On this note, AmInvestment Bank Bhd (AmInvestment Bank) believe Tourism Malaysia’s forecast of 30 million tourist arrivals in 2020 is achievable.
“Historically, tourist arrivals surged during VMYs,” it said in its own notes. “Also helping are a weak ringgit and “tourist diversion” to Asean destinations -- Malaysia included -- from Hong Kong amidst unabated political unrest and protests.”