PETALING JAYA: Policy uncertainty relating to the implementation of the operating agreement (OA) and regulated asset base (RAB) model will continue to weigh down on the aviation sector, according to HLIB Research.
“The targeted implementation of RAB effective Jan 1, 2020 seems to be facing a roadblock with no further updates from Malaysian Aviation Commission (Mavcom),” the research house said in a report yesterday.
HLIB Research stated that without RAB and finalisation of the operating agreement, Malaysia Airport Holdings Bhd’s (MAHB) return on investment/assets remains uncertain and subject to the flip-flopping government policies.
“Furthermore, the government seems determined on breaking down MAHB’s natural monopoly and allow for third party investment into Malaysia’s airport infrastructure in order to introduce competition, improve efficiency and eventually reduce costs and tariffs (as opposed to RAB’s higher tariffs structure). The higher tariffs structure under RAB is seen as drag to the implementation of Visit Malaysia Year 2020 (VMY 2020) as well as the ongoing restructuring effort of Malaysia Airlines.”
Nonetheless, HLIB expects the aviation sector to benefit from the various initiatives under VMY 2020, partially offset by deteriorating consumer sentiment.
Based on VMY 2007 and VMY 2014, visitor growth was 19.5% and 6.7% respectively, while MAHB’s international passenger movement growth was 10.5% and 4.9% respectively.
For VMY 2020, the government has allocated RM1.1 billion under Budget 2020 for VMY 2020, compared with RM1.2 billion for VMY 2014.
“We believe the aviation sector will benefit from the planned initiatives for VMY 2020, partially addressing the concerns on deteriorating Malaysia and regional sentiments,” said HLIB.
For 2020, it expects Malaysia air travel demand to grow 4.5% against 6.1% in 2019.
Meanwhile, HLIB forecast oil price to average to US$60 per barrel in 2020 due to current inventory built up globally and hence jet fuel is expected to trade at US$70-75 per barrel despite the recent intense Middle East situation.
Overall, it is maintaining a neutral call on the aviation sector with “hold” recommendations on MAHB and AirAsia. Their target prices are RM7.80 and RM1.62, respectively.