Highlights / Comments

• The SUN reported that cabinet has approved new rates for Passenger Service Charge (PSC) i.e. ‘airport tax’, which will be implemented soon for all airports in Malaysia.

• However, AirAsia commented that new rates are not firm yet. No official announcement from MAVCOM and MOT. MAVCOM is still working on the new rates proposal.

• MAHB:

• Scenario 1: Given lack of MARC information, we believe the new structure will not entail MAHB for MARC (no compensation from Gov). The impact to MAHB’s FY17-18 earnings will be a drop of 8% and 2%, given 45-50% of KLIA/KLIA2 int’l traffic is within ASEAN. Scenario 2: Should MAHB continues to receive additional MARC of RM3-6/int’l pax (incl. ASEAN) and RM1/domestic pax, MAHB’s FY17-18 profits will increase by 25% and 17%.

• AirAsia: Impact would be relatively limited, given majority of Malaysia flights are concentrated on ASEAN and domestic (no significant changes in PSC rate). However, the impact on AirAsia X will be greater, as its flights are non-ASEAN and will subsequently affect AirAsia’s connecting flights. However, we believe the impact to be relatively limited, given the rate increment of RM41 is relatively trivial to total expenses for international travels.

Risks

• World crisis (ie. war, tourism and epidemic outbreak), shutdwon of KLIA2, surge in jet fuel price and development of high speed train between Singapore and Pulau Pinang.

Forecasts

• Unchanged.

Rating

• Overweight

• Positives – 1) Government initiatives to boost tourist arrivals; 2) Liberalization of ASEAN open sky policy; 3) Implementation of AEC; and 4) Low jet fuel cost.

• Negatives – 1) Air incidents; and 2) Weakened RM.

Valuation

• Maintain BUY on AirAsia with unchanged TP of RM3.85 based on SOP.
• Given the share price rally, we downgrade MAHB to HOLD with unchanged TP of RM6.70 based on SOP. Based on Scenario 1, our TP will cut to RM6.50 and Scenario 2, our TP will increase to RM7.30.

Source: Hong Leong Investment Bank Research - 22 Sep 2016