‘RAB framework not likely in the near future’
The implementation of Regulatory Asset Base (RAB) framework is not expected in the foreseeable future, and if it materialises, analysts project that it will likely be several quarters away and may be subject to various revisions.
KUCHING: The implementation of Regulatory Asset Base (RAB) framework is not expected in the foreseeable future, and if it materialises, analysts project that it will likely be several quarters away and may be subject to various revisions.
Affin Hwang Investment Bank Bhd (Affin-Hwang Capital) expected the implementation of the RAB to be deferred for the foreseeable future and saw the risk of an outright cancellation as also high.
This was after taking into consideration the proposed Civil Aviation Authority of Malaysia (CAAM)-Malaysian Aviation Commission ( Mavcom) merger and Mavcom’s press release, where its executive chairman Dr Nungsari Ahmad Radhi said he will now focus on the welfare of the staff and a responsible handover.
“All in, we expect the RAB framework to be shelved for now, as Mavcom is focusing on its staff’s welfare and the handover process,” Affin Hwang
Capital said in a company update on Malaysia Airports Holdings Bhd (MAHB).
“Post-merger, CAAM may reconsider the RAB framework, but there is no clarity whether CAAM will accept or implement the framework.
“The implementation, if materialised, will likely be several quarters away and may be subject to revisions.”
In view of these uncertainties, the research firm has revised its earnings model for MAHB, reversing the impact of the RAB framework.
On a separate note, Affin-Hwang Capital highlighted that the discussions on operating agreements (OAs) between MAHB and Ministry of Transport ( MOT) are not forthcoming - the recent resignation of MAHB’s chief executive officer (CEO), Raja Azmi Raja Nazuddin, may further delay the finalisation or signings of the OAs.
“Overall, we understand that the government and MAHB are still negotiating the terms, and the new OAs have not been signed yet.
“The recent resignation of Raja Azmi as MAHB’s CEO, and subsequently, the search for a new permanent CEO, may further delay the finalisation of the OAs, we believe.”
Under the prevailing OAs, the research firm now expected the Malaysian passenger service charges (PSC) to stay flat in 20202021E and MAHB to continue paying a rising user fee.
“While these are not detrimental to MAHB’s profitability, investors (including us) were expecting a higher financial return under the RAB framework.
“Elsewhere, MAHB will likely defer its infrastructure upgrades (ie, baggage handling system, Aerotrain at KLIA) and this may affect its operational efficiency.”
On forecasts for MAHB, Affin Hwang Capital has cut its 20202021E earnings per share ( EPS) by eight-nine per cent after reversing the financial impact of the RAB framework.
This included lowering the research firm’s PSC and capital expenditure (capex) forecasts and raising the user fee projections.
“Operationally, MAHB’s business outlook remains healthy; we expect higher passenger movements, good cost efficiencies and lower finance costs for the Turkey business to drive a three-nine per cent growth in MAHB’s 2020-2021E EPS.”
All in, we expect the RAB framework to be shelved for now, as Mavcom is focusing on its staff’s welfare and the hand-over process. Affin Hwang Capital