Stock Name: AIRPORT
Company Name: MALAYSIA AIRPORT HOLDINGS BHD
Malaysia Airports Holdings Bhd
(Sept 12, RM6.30)
Maintain outperform at RM6.29 with revised target price of RM7.80: MAHB announced last Friday that it has been advised by the Ministry of Transport to put on hold the approved increases on the passenger service charge (PSC) as well as the aircraft landing and parking charges until further review by the government.
To recap, MAHB announced last month an increase in the international PSC from RM51 to RM65 per person (+RM14) for all airports and from RM25 to RM32 per person (+RM7) for the low-cost carrier terminal from Sept 15. It also announced a 30% increase in landing charges and a 64% rise in parking charges to be implemented in stages in 2012 to 2014.
This is an unwelcome surprise to us as last month's aeronautical charge hikes were officially announced by Transport Minister Datuk Seri Kong Cho Ha, following which we raised our earnings forecasts for MAHB.
After last Friday's announcement, MAHB may have to continue with the current arrangement indefinitely, wherein all international departing passengers from all non-LCCT airports will be charged the existing RM51 per person PSC and the government compensates MAHB for RM14 per person, thereby allowing MAHB to earn RM65 per person PSC for these international departures. For international departing passengers originating from the LCCT airports, MAHB will not be able to implement the RM7 per person hike, which means that the existing RM25 per person PSC remains in force beyond Sept 15.
In addition, the current landing and parking charges will be unchanged and the proposed staggered 30% hike in landing charges and 64% rise in parking charges may be abandoned.
The government will continue to pay MAHB RM14 per person compensation for each international passenger departing from the non-LCCT airports. However, we are unclear if'' it will compensate MAHB for the proposed RM7 per person hike for each international departure from LCCT airports. We note that the 2009 restructuring agreement had allowed for a PSC hike only in 2014, rather than in 2011, and we are uncertain if MAHB will receive any compensation for the RM7 per person PSC hike deferment.
For the landing and parking charges, MAHB is entitled under the 2009 restructuring agreement to increase the charges up to the lowest of the four regional peers, which is currently Indonesia. However, even back in 2009 when MAHB had the opportunity to increase these charges by 30%, it did not do so as air travel was expected to be weak in the wake of the global financial crisis. Given that landing and parking charges are not covered by the marginal cost support mechanism, the odds are MAHB will not get any compensation for the deferred parking and landing fee hikes.
This U-turn shows the strength of the airline lobby at the moment, with both MAS and AirAsia under the stewardship of Tan Sri Tony Fernandes. The hikes came at a time when MAS is racking up huge losses, which may have made the lobbying easier. MAS needs every bit of help it can get and aeronautical charge hikes fly in the face of the government's priority of turning MAS' fortunes around. MAHB is currently earning decent profit with the existing tariffs. Furthermore, MAHB cannot discriminate between the airlines by charging different fees.
We have reflected the tariff hike deferrals by removing them from our earnings model. We now reduce our earnings per share forecasts by 6.6% for FY12 and 7.9% for FY13. This would have reduced our end-2011 target price from RM8 to RM7.50 but we are taking the opportunity to roll forward the time horizon of our target price from end-2011 to end-2012. Our new discounted cash flow-derived target price is RM7.80.
We emphasise that MAHB has not been asked to reduce its charges, but merely to give up its proposed rate increases. Its business model remains robust.
We continue to rate MAHB an 'outperform' and recommend investors accumulate on weakness. We believe this tourism play will piggyback on AirAsia's strong growth without the excess baggage of oil price volatility. We view it as a consumer play through rising retail spending within its outlets, especially with the upcoming KLIA2 and joint-venture mall. The strong passenger traffic growth of 12.7% year-to-date will support earnings. MAS' oneworld alliance membership could bring new airlines into KLIA 'British Airways and Qantas. Their return to KLIA after more than a decade's absence would be positive for MAHB and for the development of KLIA. ' CIMB Research, Sept 12
This article appeared in The Edge Financial Daily, September 13, 2011.
Company Name: MALAYSIA AIRPORT HOLDINGS BHD
| Research House: CIMB | Price Call: BUY | Target Price: 7.80 |
Malaysia Airports Holdings Bhd
(Sept 12, RM6.30)
Maintain outperform at RM6.29 with revised target price of RM7.80: MAHB announced last Friday that it has been advised by the Ministry of Transport to put on hold the approved increases on the passenger service charge (PSC) as well as the aircraft landing and parking charges until further review by the government.
To recap, MAHB announced last month an increase in the international PSC from RM51 to RM65 per person (+RM14) for all airports and from RM25 to RM32 per person (+RM7) for the low-cost carrier terminal from Sept 15. It also announced a 30% increase in landing charges and a 64% rise in parking charges to be implemented in stages in 2012 to 2014.
This is an unwelcome surprise to us as last month's aeronautical charge hikes were officially announced by Transport Minister Datuk Seri Kong Cho Ha, following which we raised our earnings forecasts for MAHB.
After last Friday's announcement, MAHB may have to continue with the current arrangement indefinitely, wherein all international departing passengers from all non-LCCT airports will be charged the existing RM51 per person PSC and the government compensates MAHB for RM14 per person, thereby allowing MAHB to earn RM65 per person PSC for these international departures. For international departing passengers originating from the LCCT airports, MAHB will not be able to implement the RM7 per person hike, which means that the existing RM25 per person PSC remains in force beyond Sept 15.
In addition, the current landing and parking charges will be unchanged and the proposed staggered 30% hike in landing charges and 64% rise in parking charges may be abandoned.
The government will continue to pay MAHB RM14 per person compensation for each international passenger departing from the non-LCCT airports. However, we are unclear if'' it will compensate MAHB for the proposed RM7 per person hike for each international departure from LCCT airports. We note that the 2009 restructuring agreement had allowed for a PSC hike only in 2014, rather than in 2011, and we are uncertain if MAHB will receive any compensation for the RM7 per person PSC hike deferment.
For the landing and parking charges, MAHB is entitled under the 2009 restructuring agreement to increase the charges up to the lowest of the four regional peers, which is currently Indonesia. However, even back in 2009 when MAHB had the opportunity to increase these charges by 30%, it did not do so as air travel was expected to be weak in the wake of the global financial crisis. Given that landing and parking charges are not covered by the marginal cost support mechanism, the odds are MAHB will not get any compensation for the deferred parking and landing fee hikes.
This U-turn shows the strength of the airline lobby at the moment, with both MAS and AirAsia under the stewardship of Tan Sri Tony Fernandes. The hikes came at a time when MAS is racking up huge losses, which may have made the lobbying easier. MAS needs every bit of help it can get and aeronautical charge hikes fly in the face of the government's priority of turning MAS' fortunes around. MAHB is currently earning decent profit with the existing tariffs. Furthermore, MAHB cannot discriminate between the airlines by charging different fees.
We have reflected the tariff hike deferrals by removing them from our earnings model. We now reduce our earnings per share forecasts by 6.6% for FY12 and 7.9% for FY13. This would have reduced our end-2011 target price from RM8 to RM7.50 but we are taking the opportunity to roll forward the time horizon of our target price from end-2011 to end-2012. Our new discounted cash flow-derived target price is RM7.80.
We emphasise that MAHB has not been asked to reduce its charges, but merely to give up its proposed rate increases. Its business model remains robust.
We continue to rate MAHB an 'outperform' and recommend investors accumulate on weakness. We believe this tourism play will piggyback on AirAsia's strong growth without the excess baggage of oil price volatility. We view it as a consumer play through rising retail spending within its outlets, especially with the upcoming KLIA2 and joint-venture mall. The strong passenger traffic growth of 12.7% year-to-date will support earnings. MAS' oneworld alliance membership could bring new airlines into KLIA 'British Airways and Qantas. Their return to KLIA after more than a decade's absence would be positive for MAHB and for the development of KLIA. ' CIMB Research, Sept 12
This article appeared in The Edge Financial Daily, September 13, 2011.
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