The High Court decision brings more clarity to the enforcement of PSC going forward
By FARA AISYAH / Pic By TMR
MALAYSIA Airports Holdings Bhd (MAHB) will take steps to collect the outstanding passenger service charge (PSC) due from AirAsia Group Bhd as decided by the High Court, which analysts say will help bring more regulatory certainty to the enforcement of future rules.
MAHB, in a notice yesterday, stated the estimated PSC value to be collected is RM41.5 million comprising the difference in the previous and current PSC for international non-Asean passengers, as well as late payment charges.
“We operate in a highly regulated industry where the PSC charges are determined by the Malaysian Aviation Commission (Mavcom). The charges are not decided or imposed by us, rather it is set and regulated by Mavcom and the government,” the airport operator said.
The company added it was its responsibility to implement the PSC as gazetted by Mavcom.
AirAsia will appeal against the High Court decision.
While the dispute drags on, JPMorgan Securities (M) Sdn Bhd expects a positive share price reaction for MAHB as the court’s ruling brings clarity to the enforcement of PSC going forward.
The outstanding amount came about due to AirAsia’s refusal to collect full PSC of RM73 per pax imposed by MAHB on Kuala Lumpur International Airport 2 departing international passengers, and charged RM50 per pax instead.
The investment bank noted in the event the RM40.7 million overdue PSC is received, it will represent 7% of MAHB’s financial year 2019 estimated net profit. This will be cashflow positive, while provisions for bad/doubtful debts will have been made earlier.
“In our view, this brings more regulatory certainty to the enforcement of PSC once the upcoming regulatory asset base (RAB) is in place, and puts to rest one of the main concerns for investors,” JPMorgan noted in a report last week.
The firm’s target price for MAHB is currently at RM8.80, based on sum-of-the-parts, with free cashflow discounted at a weighted average cost of capital of 7.7% for Malaysia airports and 12.2% for Istanbul Sabiha Gokchen (ISG) International Airport.
The counter closed two sen or 0.23% higher at RM8.58 yesterday, giving it a market capitalisation of RM14.24 billion.
JPMorgan said while the finalisation/RAB clarity could increase share price volatility, it would be buying on dips for exposure to the government’s efforts to boost tourism.
MAHB offers exposure to Malaysia’s rising tourism theme and rising regional low-cost travel, minus AirAsia’s competition and fuel cost risk.
“We expect the RAB outcome to be at least discounted cashflow (DCF)-neutral,” JPMorgan said.
The key downside risks to its rating and price target include lower than expected RAB returns; adverse changes to the operating agreement; and exogenous factors (such as health scares, airline incidents, recession, social unrest).
Further catalysts include higher than expected passenger volume growth; dividends surprising on the upside; faster than expected commercial land value-unlocking; higher than expected RAB returns; and the unlocking of value from a potential ISG sale.
MIDF Amanah Investment Bank Bhd has also revised its target price on MAHB upwards to RM9.43 per share based on DCF valuations.
MIDF said the latest changes in the consultation paper indicate the certainty of the RAB framework to be implemented according to schedule by January 2020.
However, the firm reiterates in the short term, impending departure levy would be tempered by accommodative visa policies for tourists from China and India.
“Other growth factors would include direct connectivity seen from international airlines flight straight to locations such as Langkawi.
“We strongly believe MAHB passenger numbers can surpass the 100 million mark in 2019, while maintaining a relatively conservative growth rate of 3.5% which translates to 102.5 million passengers,” it noted.
MIDF Research added that risks to its recommendation include adverse revision towards the user fee paid to the government; and lower than expected returns from under the new RAB framework.