Passenger service charge equalisation will have minimal impact on MAHB

PETALING JAYA: The equalisation of the passenger service charge (PSC) for international destinations from klia2 with Kuala Lumpur International Airport (KLIA) next year, will have minimal impact on Malaysia Airports Holdings Bhd (MAHB), analysts said.
Last week, the Malaysian Aviation Commission announced passengers flying international out of klia2 would pay the same PSC as those flying out of KLIA.
This would mean that charges would go up by RM23 to RM73.
“We note that international (ex-Asean) passengers at klia2 amounted to 9% of MAHB’s total throughput – implying a lower number of affected passengers compared with revisions last year, which raised PSC effectively across the board,” AllianceDBS Research said in its report today.
It does not expect significant impact on travel demand as the absolute increment of RM23 would not constitute a large portion of overall travel expenses, especially for long-haul destinations.
“However, we do not rule out more selective consumer behaviour with regard to destination or airlines; or short-term noises like front-loading bookings (before Jan 1, 2018),” it said.
It noted that MAHB remains bound by the benchmark rates set out in its operating agreement with the government and as it is still being compensated via the marginal cost support sum (MARCS), the increased collections are expected to be offset by reduced or neutralised MARCS.
“Note that the group is still in discussions on potential revisions to the operating agreement, with a view to finalise the terms in 2H18,” it said. It maintained its RM8.75 target price and “hold” rating on MAHB.
Meanwhile, UBS Securities Malaysia expects that PSC collected at klia2 will be roughly the same as if the benchmark PSC rates were used, hence revenue would be similar and the company should no longer accrue MARCS PSC in 2018.
“Even with the change in PSC earlier this year, MAHB has been recognising and accruing MARCS PSC, which is the difference between the estimated PSC to be collected based on benchmark rates and the PSC on actual rates.”
UBS Securities expects upside to its revenue and earnings estimates if passenger traffic for non-Asean international sector passengers (currently about 26% of total passengers; we estimate +8% in 2018) increases at a faster rate compared to Asean (about 24% of passengers) and domestic (49% of passengers) sector passengers.
Despite the minimal impact, it expects the market to react positively, especially if non-Asean international passengers grow at similar rates to this year.
Although the shares trade at 8.6 times 2017E enterprise value (EV) to earnings before interest, tax, depreciation and amortisation (ebitda), it is at 52 times price-to-earnings ratio (PE) because of high concession payments to the Turkish government and interest costs, which come in below the ebitda line. It has a “sell” rating with a price target of RM7.10 on MAHB.
“We believe the risks for MAHB are slower-than-expected ramp-up of the new low-cost carrier terminal, high gearing over the next few years and exogenous factors such as health and security scares that could dampen passenger traffic growth.”