MAHB downgraded on REIT plan, departure levy

PETALING JAYA: Analysts have downgraded Malaysia Airports Holdings Bhd (MAHB) after the government’s plan to set up the world’s first airport real estate investment trust (REIT) and departure levy for outbound air travellers.
On Monday, MAHB was the top four loser on Bursa Malaysia, tumbling 7.76% to RM7.61 with 7.45 million shares done.
HLIB Research said the establishment of the airport REIT to fund the airport capital expenditure (capex) is contradicting with the concept of regulated asset base (RAB), where MAHB incurs airport capex and become an asset heavy operator (as opposed to government’s intention to maintain MAHB as an asset light operator). Under the RAB structure, MAHB’s allowable earnings are dependent on the asset base size (driven by capex spent by MAHB).
“However, the airport REIT will limit MAHB capex and asset base size, hence affecting MAHB’s earnings outlook. Nevertheless, there are no clear guidelines and information regarding the airport REIT and RAB at the moment,” it explained.
HLIB downgraded MAHB to a “hold” call from “buy” with a lower target price of RM8 from RM10 after cutting its earnings for FY19 (-2.6%) and FY20 (-2.3%) as well as heightened earnings risk from the airport REIT and RAB.
UOB Kay Hian also downgraded MAHB to a “sell” call with a target price of RM7.40 versus RM8.30 previously, saying that the introduction of a REIT manager will effectively add a middleman who would require returns on investment higher than the Malaysian government. The latter, of course, benefits indirectly via positive externalities arising from increased tourism.
“We also believe that government would have to make the terms attractive for the REIT manager (with a mandate for 90% payout) and this could be at MAHB’s expense.”
It said MAHB’s CEO was on record saying that the continued annual rise in user fee by 25 basis points to a maximum of 30% was not commercially viable, but it would benefit equity investors and debt holders of the airport REIT. Annualising MAHB’s 1H18 user fee on the RM4 billion REIT investment would provide an annual yield of about 3%.
“Against such a backdrop, we are unsure to what extent MAHB or the Malaysian Aviation Commission could effectively propose a regulated asset base pricing and an incentive-based regulation for incremental capex. Current regulations also limit REITs from undertaking capex greater than 15% of its asset base. Given the regulatory risk and uncertainty, we do not have confidence in earnings or cash flow projection for 2019 and beyond,” said UOB Kay Hian.
Nomura, which maintained its “buy” call for MAHB with a target price of RM10.27, however, said the airport REIT will be neutral on MAHB, but may be positive in the longer term. Given the RM4 billion value of the 30% stake as mentioned by the government, it said this implies a market capital potential of RM13.3 billion for the airport REIT.