New operating agreement to improve MAHB’s profitability


AN IMPENDING revision to the operating agreement (OA) may improve the structural profitability of Malaysia Airport Holding Bhd (MAHB), CGS-CIMB analyst Raymond Yap said in a research report yesterday.

He added that the potential signing of the new OA with the government may also result in an increase in aeronautical tariffs.

MAHB described the proposed new OA as a “gamechanger and catalyst” for itself.

“Although the terms of the new OA are not yet publicly known, we suspect that the new OA will make specific provisions for an increase in net aeronautical charges for MAHB if and when it undertakes new capital expenditure, with a view to fairly remunerate MAHB.

“With MAHB’s aeronautical charges among the lowest in the region, there may also be scope for a near-term, one-off step-up in charges, in our view. If this materialises this year, it could be another rerating catalyst for MAHB,” Yap said.

MAHB also expects to make progress in the Aeropolis Development Agreement and Land Lease Agreement.

“If this materialises, it will certainly help MAHB make progress on the development of the Aeropolis, including the setting up of new joint ventures with third-party specialists to develop its air cargo and logistics cluster, its aerospace cluster, and its meetings, incentives, conferences & exhibitions and tourism cluster, particularly once the Covid-19 pandemic is firmly under control,” he added.

MAHB continues to keep a strong balance sheet, with Moody’s A3 and the Rating Agency of Malaysia’s AAA ratings maintained.

On Dec 30, 2021, MAHB raised RM800 million in new sukuk at a blended rate of 3.99%, previously it raised RM700 million in new sukuk at a blended rate of 3.39% in November 2020.

MAHB has continued access to RM7.3 billion in undrawn credit lines and does not see a need to raise new equity, for now.

He added that although it is hard to predict on the border reopening, the growing evidence that the Omicron variant of the Covid-19 virus is less deadly than the Delta variant providing some hope, and MAHB remains a good recovery plan.

“A surge in Omicron infections around the world has not led to a similar surge in hospitalisation and deaths. As Omicron becomes better understood, we hope that border restrictions will gradually relax. For instance, Thailand is reportedly considering restarting its quarantine free programme for vaccinated travellers, which was suspended on Dec 22, 2021, on Omicron fears,” Yap said.

CGS-CIMB reiterates ‘Add’ recommendation on MAHB.

He also stated that the new airline in Malaysia could trigger price competition.

MYAirline Sdn Bhd has already recruited many individuals and negotiated the lease of two A320s with more to come.

“An airline starting up during the pandemic with a clean balance sheet and access to ultralow-cost aircraft leases will likely ensure low operating costs and the ability to compete aggressively with incumbents for market share by offering sustainable low airfares,” the analyst said.

While AirAsia Bhd’s fleet grew last year despite the pandemic by absorbing its affiliates’ planes, it will likely be eager to redeploy its fleet and retain its market share.

Malaysia Airlines Bhd has renegotiated its aircraft lease rates and is in a good position to compete, while Malindo Airways Sdn Bhd is also considering bringing back its jet planes from Indonesia if demand in Malaysia warrants their return.

“In short, we think that aggressive price competition will likely follow a surge in aircraft seat capacity in the post-pandemic period, which may stimulate passenger traffic volumes, with MAHB as the unequivocal winner,” he said.