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Edited Transcript of AIRPORT.KL earnings conference call or presentation 30-Aug-19 7:30am GMT

Q2 2019 Malaysia Airports Holdings Bhd Earnings Call

KLIA, Sepang Sep 5, 2019 (Thomson StreetEvents) -- Edited Transcript of Malaysia Airports Holdings Bhd earnings conference call or presentation Friday, August 30, 2019 at 7:30:00am GMT

TEXT version of Transcript

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Corporate Participants

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* Zeid Abdul Razak

Malaysia Airports Holdings Berhad - Senior Manager of IR

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Conference Call Participants

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* Ahmad Maghfur Usman

Nomura Securities Co. Ltd., Research Division - VP

* Ben Hartwright

Goldman Sachs Group Inc., Research Division - Executive Director

* Ben Shane Lim

Macquarie Research - Research Analyst

* Daniel Wong

Hong Leong Investment Bank Berhad, Research Division - Research Analyst

* Guan Chuan Soon

KAF-Seagroatt & Campbell Securities Sdn. Bhd., Research Division - Research Analyst

* Jian Bo Gan

UBS Investment Bank, Research Division - Research Analyst

* Joanna Cheah

Crédit Suisse AG, Research Division - Research Analyst

* K. Ajith

UOB Kay Hian Research Pte Ltd - Director of Asia Transport Research

* Mohshin Abd Aziz

Maybank Kim Eng Holdings Limited, Research Division - Analyst

* Parash Jain

HSBC, Research Division - Head of Transport Research, Asia-Pacific

* Siew Khee Lim

CIMB Research - Head of Research for Singapore

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Presentation

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Unidentified Company Representative, [1]

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(foreign language) and a very good evening, everyone. Welcome to Malaysia Airports' Second Quarter 2019 Analyst Briefing. Thank you for those who are attending today and as well those who are on the line.

We will begin with a presentation by Mr. Zeid Abdul Razak, Senior Manager of Investor Relations, Malaysia Airports, followed by a Q&A session at the end.

Before we start, operator, please proceed with the instruction.

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Operator [2]

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Good afternoon, and welcome to all site to today's conference. You are now participating in Malaysia Airports Holdings Berhad conference. (Operator Instructions)

I will now hand over the session to Mr. Zeid Abdul Razak, Senior Manager, Investor Relations of Malaysia Airports Holdings Berhad. Thank you, and over to you, sir.

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Zeid Abdul Razak, Malaysia Airports Holdings Berhad - Senior Manager of IR [3]

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(foreign language) And a very good evening, everybody who's dialing into the call and those who are here in the Malaysia Airports corporate office. Very interesting times ahead at Malaysia Airports indeed. And for today's analyst presentation, I think what we will do, as always, is go through a few high-level slides on the financials, in particular the year-to-date results, followed by, prior to the Q&A, an update on ongoing developments with regard to the organization and then only proceed with the questions and answers.

So with that, I think moving on to Page 4. We've managed to report an impressive revenue growth for the first half year-to-date at about 9.2% growth to MYR 2.5 billion across both the Malaysian and Turkish operations.

In terms of the earnings before interest, taxes, depreciation and amortization, or EBITDA, that reported a growth of about 7.4%, higher than the MYR 1.09 million (sic) [MYR 1.09 billion] achieved in 2018. Please note, just in case for those of you who are not too familiar with the 2018 numbers, this excludes the one-off of what we call noncore items in respect of the fair valuation in GMR Hyderabad as well as the disposal of investment in Malé International, along with its associated transaction costs. So on a core EBITDA basis, 7.4% growth in overall numbers.

This is backed against a strong passenger traffic growth of 4.4% across the group. In the case of international passengers, Malaysia has seen a slight reduction in its typical growth over the years, but that's compensated by the strong growth in international pax in Turkey as well, and that's translated well for ISG's financials.

Moving on to the next page. On Page 5, we have done the analysis on the business segment operations. For the Malaysian operations, which include the Qatari business, the Malaysian operations reported an EBITDA of about MYR 716 million for the first half of the year, that's about 58% of the guided KPI. The guided KPI for this 2019 period is about MYR 1.239 billion. And again, to refresh everybody's memory, that 1.236 -- apologies, MYR 1.236 million (sic) [MYR 1.236 billion] is a 0.5% increase over the prior year on a core level, so in sync with the EBITDA growth for the Malaysian operations.

On the Turkish front, EBITDA reported was about MYR 453.2 million. That's about 49% of the guided MYR 927 million for the full year. The MYR 927.5 million FY '19 target for EBITDA of the Turkish operations is a 7.5% increase over the actual results in the prior year as well.

We're slightly behind on the Airport Service Quality front in terms of the rank for KLIA, which is airport in its category of more than 40 million passengers. But in terms of the score, KLIA is still at a 4.69 out of 5 score, which is quite healthy in that sense.

If we jump along to Page 7 of the presentation slides. Page 7 shows you the split between the revenues for airport operations and non-airport operations. With regard to the airport operations in Malaysia, that showed a revenue of MYR 1.77 billion, a 6.5% increase over the year. This growth of 6.5% is taking into account the non-aeronautical commercial reset implications for this period and the year before as a like-for-like basis, as we've guided before, that KLIA and its sister terminal, klia2, is ongoing in terms of its commercial reset over the next 1.5 years as well. So with that in mind, again, a 6.5% increase in revenue is still commendable.

Non-airport operations also showed an increase of 6.5% to MYR 145 million. This is predominantly on the back of strong operations in Qatar, which we recognized in the Malaysian operations.

EBITDA as a whole showed a 27.3% decline, but that's on the basis of the strong EBITDA in the first half of 2018, reflecting the one-off gains mentioned earlier. Stripping out these one-off gains or noncore items, as we refer to, EBITDA has reflected a 2.5% increase versus last year's like-for-like EBITDA. The 2.5% increase, excluding the noncore items, is compared typically against the first quarter this year. The first quarter this year for the Malaysian operations, we actually showed a decline in EBITDA of 9.6%. So that has shown a huge swing in the second quarter alone to take the first half year-to-date core EBITDA at 2.5% growth.

On the ISG front, aeronautical and non-aeronautical revenues combined showed an increase of 18.6% in non -- in airport operations revenue to about MYR 593 million. Non-airport operations, which is quite small, showed an increase of 12%, whereas EBITDA for the Turkish operations showed a 16.3% increase to MYR 453 million. That 16.3% increase is compared typically against the first quarter. In the first quarter this year, we only showed a 10.1% increase. So again, that's a huge increase just on the second quarter alone to take it to an overall 16.3% increase for the year-to-date. At consolidated level, we have shown a 7.4% increase in EBITDA, excluding noncore items, to MYR 1.17 billion.

The next slide shows you the typical equity profile. Foreign shareholding has dropped a bit, as you can see on the top left-hand corner of Page 8, to 34.5% from the 2018 foreign shareholding of 40%.

Meanwhile, on the borrowings profile, 2019, there are several debt payments down the line for Turkey in particular. We have already paid EUR 15 million out of the EUR 35 million scheduled payments this year. That EUR 15 million was paid on 24th of June, and there's a remaining EUR 20 million to be paid by the end of this year, in December. Next year, however, for the Malaysian sukuk, we have about a MYR 1 billion payment coming up.

With Page 9, you see some of the significant events during the period in question. In April this year, we had an approval by the new Government of Malaysia for the extension of the operating agreement for an additional 35 years. We'll give you some updates on the OA extension in a bit.

Moving along, we have also declared a MYR 0.09 dividend, a final dividend for 2018, on 2nd May 2019, followed by today's announcement of an interim dividend of MYR 0.05, which is typical for this type of payment during the year.

Now here is where we would like to give you some recent updates on the ongoing developments from the Malaysia Airports. First and foremost is on the operating agreement. As earlier mentioned, new Government of Malaysia has approved the extension for an extra 35 years. While we are still negotiating some of the final terms with regards to the agreement, the Ministry of Transport expects that this new operating agreement will be finalized by end of this year.

In respect to the regulated asset base, Malaysia Airports would like to thank all its stakeholders for providing feedback to the Malaysian Aviation Commission. MAVCOM has reported in a recent release that there were about 25 significant responses by various stakeholders, including airlines, airports, industry players and regulators as well. MAVCOM also announced today that they expect to announce PSC charges by the end of September as part of the final regulated asset base framework. So we look forward to the final charges, along with the terms behind the RAB.

On the PSC front, the Government of Malaysia today announced that effective 1st October 2019, PSC for passengers departing for non-ASEAN destinations, other than -- in airports other than KLIA Main terminal, will be charged at MYR 50 effective the date mentioned earlier.

The adjustment for the PSC will take into account the user fee contra-mechanism, which we are still discussing final terms with the Government of Malaysia. So we hope that once we have more clarity, we will share that with you. But as always guided by MAHB and its management, we typically tend to negotiate a position that MAHB shall never be worse off, and this has continuously been reflected in various ways.

So to just give a bit of color on this user fee contra. What we can say at this juncture is that this is not new for MAHB. This is something as a mechanism that we've implemented in the past. If all of you recall, with regards to the Langkawi expansion last year, Malaysia Airports spent about MYR 89 million. On behalf of the Government of Malaysia, that MYR 89 million will be recouped via a user fee offset or contra.

Again, there are other instances where we've done this. Prior to this, we've also funded the infrastructure works for laying the ground ready for China and Alibaba in its development of the Digital Free Trade Zone e-fulfillment center, again, to the tune of MYR 50 million, MYR 60 million via offset of user fees over several years. So rest assured to all that's concerned that the user fee mechanism is a fair mechanism. It's robust. It's been in place since 2009, and it's something that has been tested before many times.

Last but not least, in terms of update, is with regards to the Writ of Summons with our largest customers, AirAsia and AirAsia X Berhad. The court of -- high court has awarded a decision in our favor. That being said, those airlines have since filed an appeal and a stay of execution. There will be a case management hearing for 9 September with regards to the appeal. But again, any news and updates, we'll provide to the investment community on a timely basis.

So without further ado, I think we'd like to open the floor for questions. Operator, if you wouldn't mind giving the instructions. Thank you very much.

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Questions and Answers

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Operator [1]

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(Operator Instructions) The first question is from Ms. Joann (sic) [Joanna] from Crédit Suisse.

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Joanna Cheah, Crédit Suisse AG, Research Division - Research Analyst [2]

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Zeid, Joanna here. Sorry, I'm just trying to wrap my head around this announcement that just came out -- or rather the statement by the government. So earlier, you were saying that MAVCOM is expected to announce the final charges by end of September. But now they are saying that the PSC for non-ASEAN in all airports, except KLIA, will be set at MYR 50. So I guess my question will be under the RAB, assuming whatever return that will be determined, would the remaining PSCs be played around to ensure that you would get that return, except for this MYR 50 that has just been set? Or how can you play around that? Or is this RAB no longer relevant if the charge is being set beforehand?

And also you mentioned that the adjustment would take into account the contra against the user fee. So essentially, by lowering it to MYR 50 and contra-ing using the user fee, it just means that the government is subsidizing the reduction, right? Is that a fair assumption?

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Zeid Abdul Razak, Malaysia Airports Holdings Berhad - Senior Manager of IR [3]

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So Joanna, thanks for the questions. On the second question, yes, it's a fair presumption that the government is cross-subsidizing the charges and users of the airport who fly to non-ASEAN destinations.

But circling back to your earlier question on the regulated asset base mechanism. If you look at MAVCOM's announcement about less than an hour ago today, the announcement is with regards to the implementation of the RAB. Hence, RAB is still ongoing and it's still being fine-tuned prior to the final announcement. In saying that, the RAB, as we've previously mentioned to our shareholders and investors along with the analysts, is a very flexible mechanism which will allow the airport operator a fair rate of return to be classified into various categories and possibly the introduction of new categories as well in order to spread the charges across the board.

Now whether the announcement of the reduction in PSC to MYR 50 for non-ASEAN destinations is a precursor to that, it remains to be seen. But rest assured, within the RAB framework, it does address the various facilities and service levels of the respective terminals and airports as well as the volume of passengers that uses these airports accordingly. So again, RAB is a robust framework. It's industry best practice. How we slice the cake to arrive at that overall fair rate of return and regulated blended revenue per passenger is something that will be fine-tuned in the coming weeks. And yes, I think we are fine as long as we get that right rate of return accordingly.

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Joanna Cheah, Crédit Suisse AG, Research Division - Research Analyst [4]

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Okay. I guess my worry is that initially, as you correctly pointed out, you guys have the flexibility to allocate the charges between a few items. And then now one thing is being said, so you've got to play around with the remaining items. So what happens in the future if they keep determining a couple of parameters and then that leaves not much room for you guys to move things around in order to achieve the required rate of return?

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Zeid Abdul Razak, Malaysia Airports Holdings Berhad - Senior Manager of IR [5]

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Not necessarily, actually, Joanna, because that's where we have the operating agreement in place. And again, the operating agreement, whether it's the existing agreement that was signed in 2009 or the renegotiated agreement hopefully by the end of the year, as mentioned earlier, I think we will always protect our shareholders' interest. And this has been proven many times before, whether it's the user fee contra mechanism, the MARCS mechanism. At the end of the day, whatever the benchmark PSC charges are per the operating agreement, that's the entitlement we're allowed for. And in the event that the charges are to be below the benchmark, that's where certain mechanisms kick, right? So again, we are not too overly concerned about these recent developments.

We have a question on the floor first, operator, if you don't mind, for a second.

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Mohshin Abd Aziz, Maybank Kim Eng Holdings Limited, Research Division - Analyst [6]

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With regards to the announcement from MOT, right, it's basically reverting back to the second operating agreement charges, so to speak. So you already have a contractual agreement with the government and it's been assigned, so technically, you are entitled to compensation. Has there been talks or this announcement hit to you just like anybody else? Was there prior...

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Zeid Abdul Razak, Malaysia Airports Holdings Berhad - Senior Manager of IR [7]

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Okay. So there have been, Mohshin, to answer that question, there have been preliminary talks about this. Hence, that's where, I think, the government or via the Ministry of Transport had made that remark in its official circular that this will be addressed via the user fee mechanism. Again, we've educated this government -- this new government that there are various ways to address these charges vis-à-vis the benchmark PSC rates in the OA, and the user fee being one of them, obviously, the other being the MARCS. So there have been preliminary talks.

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Mohshin Abd Aziz, Maybank Kim Eng Holdings Limited, Research Division - Analyst [8]

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Okay. When do you think there will be closure on this? Because right now, most analysts will probably have a question mark with regards to business fundamentals of the entire company for 2020, '21, '22. We don't know really what to put in our numbers, whether compensation will come and all that stuff.

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Zeid Abdul Razak, Malaysia Airports Holdings Berhad - Senior Manager of IR [9]

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So if you go back by the track record that we had and again, as we pointed out earlier, we would like to make our business and our shareholders made whole, made perfect and hence, we will always negotiate for a position that we will not be worse off.

With regards to the future financials in that respect, I think we have the new operating agreement to look out for. Until then, we are still basing all our terms per the existing agreement. So as long as we have that benchmark rates, which, by the way, in the third cycle, it is currently set for February this year at MYR 80 for KLIA Main and other airports for international departing passengers; MYR 40 for departing passengers, international passengers at klia2; and about MYR 11 for domestic passengers at all airports and Terminal C for klia2; for klia2 itself, domestic passengers have a rate of about MYR 8 for the domestic PSC.

So as long as whatever rates that come out, it's always on an overall basis, in terms of comparison, is below those charges, there will be a clawback mechanism one way or another.

Next question, operator?

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Operator [10]

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The next question is from Mr. Parash from HSBC.

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Parash Jain, HSBC, Research Division - Head of Transport Research, Asia-Pacific [11]

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The question related to MAVCOM was already asked. After this, I have 2 questions. Like, at current run rate that we have seen in Turkey business, how far do you think we are from seeing breakeven at the bottom line level?

And moving back to Malaysia, how has been the trend in the third quarter with respect to international business for you?

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Zeid Abdul Razak, Malaysia Airports Holdings Berhad - Senior Manager of IR [12]

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Parash, hope all is well in Hong Kong. Back to the first question, I think when you look at the -- just a second here. Sorry, for ISG, how far are we from breaking even at the consolidated group level? If you look at the announcement we've made, and please bear with me for a second on this, for the first half to date this year, we've actually achieved a profit after tax for ISG's core airport operations to the tune of MYR 40.9 million. This can be seen on the Bursa announcement on Page 12 of the financial statement. MYR 40.9 million on a standalone company level is a much -- well, high increase when you compare that against the full 2018 standalone financials of only MYR 2 million.

But to your question on the consolidated PAT level, I think it's probably looking at about a year or 2 from now before we can turn around at group level. Now in saying that, ISG is still always cash flow positive, always EBITDA positive, whichever way you look at it, at consolidated or standalone level, and that's very promising.

The second question is on -- the trajectory on the passenger growth. I think what we look at between each year is the second half of the year is normally the stronger. In the case of Turkey, third quarter is where we have the summer months, that's where we typically see strong growth. In fact, prior to this year, the only profitable quarter is the third quarter. But beginning this year, we have seen profits for the first and second quarter in ISG on a standalone level. So that's something very promising.

For Malaysia, well, it's not so seasonal or cyclical. Second half is also typically one of the strongest. December is the month that we achieve the highest growth. And now when you compare that against 2018 second half versus second half this year, I think just to manage expectations, we have seen a correction in international passenger growth as reflected by the capacity adjustments by the local carriers. These local carriers have not really removed capacity but shifted capacity somewhat to domestic movement. So there'll be a continued trend in correction, but that will have normalized by second half this year as they've started doing this, in fairness, from the end of last year. All good.

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Operator [13]

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The next question is from Mr. Gan Jian Bo from UBS.

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Jian Bo Gan, UBS Investment Bank, Research Division - Research Analyst [14]

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I just wanted to follow up on the government's MOT statement again where they said that about that MYR 50. Have they consulted with MAHB before? Is that why you're saying this now that there were actually preliminary discussions before this? Or did they just disclose?

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Zeid Abdul Razak, Malaysia Airports Holdings Berhad - Senior Manager of IR [15]

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So going back to Mohshin's question, yes, there have been preliminary discussions on this. We've shared with the Government of Malaysia the various charges around our regional peers. We've also shared that PSC is not the key determining factor in passenger growth or passenger volumes. I think what's more important is the attractiveness of an airport as a hub, and that requires a fair level-playing field across the board. But yes, preliminary discussions have taken place. Those numbers have been discussed in the past. And I think we look forward to fine-tuning the user fee contra-mechanism with the government. Again, that's something that also has been discussed in the past before.

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Jian Bo Gan, UBS Investment Bank, Research Division - Research Analyst [16]

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Okay. And when they mentioned KLIA, do they mean the whole KLIA complex or just the main terminal?

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Zeid Abdul Razak, Malaysia Airports Holdings Berhad - Senior Manager of IR [17]

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The main terminal alone.

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Jian Bo Gan, UBS Investment Bank, Research Division - Research Analyst [18]

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Okay. All right. And -- but effective 3 years, you're getting [MYR 73], right, so you're no worse off, given that it's being [contra-ed]?

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Zeid Abdul Razak, Malaysia Airports Holdings Berhad - Senior Manager of IR [19]

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Okay. To clarify that part, effectively, we are getting the difference between what's benchmark and what charges are being passed to the users. That has always been the case under the OA mechanism. But again, the fine-tuning is still taking place. And if there's any deviation from that, of course, we will share that with you accordingly.

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Jian Bo Gan, UBS Investment Bank, Research Division - Research Analyst [20]

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Okay. So but mathematically, you're meant to be not worse off, is that right?

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Zeid Abdul Razak, Malaysia Airports Holdings Berhad - Senior Manager of IR [21]

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Exactly, exactly.

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Jian Bo Gan, UBS Investment Bank, Research Division - Research Analyst [22]

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And has the government, since there has been discussions, has the government actually explicitly agreed to the PSC hike in earlier this year, in February, as in they would compensate for the increase?

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Zeid Abdul Razak, Malaysia Airports Holdings Berhad - Senior Manager of IR [23]

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Yes, yes. I mean that CPM mechanism has always been in the operating agreement. It was a 13% increase per our benchmark rates in the OA. And those rates, I've covered earlier during the earlier question. But yes, that has always been communicated from day 1 when the new government took over last May.

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Jian Bo Gan, UBS Investment Bank, Research Division - Research Analyst [24]

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So they are fine with the 13% increase and the amount that they have to subsidize for that?

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Zeid Abdul Razak, Malaysia Airports Holdings Berhad - Senior Manager of IR [25]

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Under this contra, they've made the announcement. So yes, you can assume that they are largely fine. Subject to whatever comes out of the fine-tuning, it should be fine.

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Jian Bo Gan, UBS Investment Bank, Research Division - Research Analyst [26]

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Okay. Sure. And just going back to the second quarter numbers, we saw that other expenses actually fell quite a bit. Was there a write-back for the AirAsia dispute numbers? Or what's driving that big drop?

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Zeid Abdul Razak, Malaysia Airports Holdings Berhad - Senior Manager of IR [27]

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It's a combination of factors. So there has been a write-back to that effect. But again, when it comes to the provisioning of doubtful debts, we have this provision policy where we provide for balances more than a year. So the write-back has to account for the balances which have been past due as well. So the net impact may not be that significant in that sense.

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Jian Bo Gan, UBS Investment Bank, Research Division - Research Analyst [28]

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Okay. Then that actually drove the MYR 42 million drop on a quarter-on-quarter basis in second quarter?

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Zeid Abdul Razak, Malaysia Airports Holdings Berhad - Senior Manager of IR [29]

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On a quarter-on-quarter basis, I think it's several factors, largely being the other expenses. We have been also scaling back on some professional and driving fees -- costs, sorry. There have been also a reduction in direct materials. As you can tell, our duty-free business, Eraman, has had a slower growth or slightly small negative growth. And in that sense, you have your direct costs also reducing.

Now just to circle back on Eraman and a bit on the commercial reset I mentioned earlier. The commercial reset is not the only reason why non-aeronautical revenues are not showing strong growth. Another factor is, of course, the customs implementation of stricter rules and enforcement.

With regards to the customs enforcement, we've probably covered this last year as well, whereby in the case of the Malaysian customs authorities, I think they're a bit more harder to pass by when it comes to selling certain products above and beyond impact on the limit. So there is a more stringent enforcement with that, which is fine.

But in the case of Chinese customs authority, as you can tell, a lot of our passengers who spend on the big-ticket items are Chinese customers. There's been a clamp down as well on the movement of duty-free items back into China as this industry, which has a unique name to it, has seen some changes in laws, including on e-commerce as well. So some of our Chinese passengers, in fact, have not been buying as much as they used to. And this actually began, in fairness, from the second half of last year. So you have a slightly lower starting point to compare against the first half of this year as well.

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Jian Bo Gan, UBS Investment Bank, Research Division - Research Analyst [30]

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Okay. And lastly then, if I can touch upon the technical glitch that you had earlier this month. What are the findings there so far? And have you all worked out the potential penalty that you would be getting if you fail certain QoS criterias?

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Zeid Abdul Razak, Malaysia Airports Holdings Berhad - Senior Manager of IR [31]

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Yes. Thanks for raising that question. I'm surprised you [kept] that question up to that point. Now there will be a 6-man committee led by the Secretary-General of the Ministry of Transport to investigate the causes on the disruption of the network switch. They have a target of presenting to the government the preliminary findings anyway and recommendations as well within 1 month. Prior to that, I think it's not fair for us to preempt any findings with the government. We'll let the investigation take its course. There's also an active police report filed as well. So again, we'll let the authorities conclude their respective investigations.

On the penalties and compensation front, again, that's something that without prejudice, we will assess on a case-by-case basis. We're actually working closely with MAVCOM as well to understand the repercussions and implications to the passengers which are greatly affected.

But I think the key takeaway from all of this is the fact that the airport community, the airlines, the government agencies and also other corporates, which I think it showed that the aviation industry is a very unique industry, that everybody will pull together in trying times. This is not the first instance, last 5 years anyway since we've been here. And that's something that we should actually recognize more so than the other implications because when you scale back, I think we always let the numbers speak for itself at the end of the day. So if there are penalties to be incurred, if there are compensations, of course, they'll be assessed on a case-by-case basis. But historically speaking, we have sufficient headroom to address any of this, as you can tell from our results in the past.

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Operator [32]

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The next question is from Mr. [Shaurya] from Goldman.

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Ben Hartwright, Goldman Sachs Group Inc., Research Division - Executive Director [33]

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Zeid, it's Ben Hartwright from Goldman. I had a couple of questions. One is on the operating agreement negotiation, you mentioned that you will hope to conclude the negotiation with the government by the end of the year. I'm just wondering, I mean, does that still fit in with the planned timetable for the RAB implementation starting from January 2020? Or there is potential risk of delay in that from the OA agreement negotiation?

My second question is just on guidance. I mean the first half result is very solid. You're ahead of your run rate in terms of your guidance and targets for the full year. Just wondering how you're thinking about the target. Where's the flexibility? Or do you think there's room to be beating that?

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Zeid Abdul Razak, Malaysia Airports Holdings Berhad - Senior Manager of IR [34]

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Ben, again, hope all is well in Hong Kong. Now with regards to the operating agreement finalization against the RAB introduction 1st January 2020. I think in our dealings with the commission, there are many moving parts, as always. And I think we're working currently on the assumption that the RAB announcement with regards to the framework proper, expected to be end of September or maybe perhaps at the latest, October as well, will be done in advance of the finalization of the operating agreement. So again, in -- or for as long as we can remember, we always try to make these moving parts work one way or another. It can be done. There'll be possible adjustment mechanisms if there are major changes along the way upon implementation of RAB after the announcement of the OA as well. So there can always be flexibility in that sense, hence, that's why RAB is a good industry practice to have where that allows or caters to flexibility changes along the way.

For the 2019 expectations for the year, whether there's some room to maneuver and improve profitability, I think there's always efficiency to be made. I think the company is working hard on that at this moment. But if you track back our financials over the past, again, 5 years, which is easier to track back, historically, before we submit the EBITDA guidance for the group as a whole in these last 5 years, one way or another, we always make it work with regards to the Malaysian operations, which has been the stronger part of the overall group. That has, at times, compensated for the shortfall in Turkey. And with regards to Turkey, they say we are doing quite well as well. So there's always room to maneuver and efficiencies to be made. And we hope to announce good results as we have for the first half of this year by this time next year.

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Ben Hartwright, Goldman Sachs Group Inc., Research Division - Executive Director [35]

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Okay. Is there, I mean, any -- in terms of the run rate, I mean, should we expect, for example, costs to be going up further? I mean I think one of the reasons behind the guidance was that you have to invest in the business. There'll be some costs to meet up with some of the ASQ requirements. Is that still an expectation that second half, maybe some cost escalation?

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Zeid Abdul Razak, Malaysia Airports Holdings Berhad - Senior Manager of IR [36]

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So a very good point you raised, Ben, because when you look at the overall EBITDA guidance for Malaysia, which is only 0.5% increase versus 2018 on a core level, it is that number because of the, as you correctly pointed out, the quality of service implementation where you have slightly higher maintenance cost, staff cost as well and, not to forget, utilities cost that was a tariff hike from the second half of last year. Now if you look at last year's financials, a lot of these costs have started to creep in from the second half of 2018. And hence, when we are in the second half of this year, you expect almost on a like-for-like basis where there shouldn't be such a high increase. That's number one.

Number two. Another point to note on this QoS framework where we have to, again, spend accordingly to ensure that we meet certain acceptable service levels, which historically, we've managed to maintain, under the RAB framework, that's fine because whatever we've invested in, again, that will be -- able to be passed on through to the users under the building blocks of RAB as OpEx is one of the items that we can pass on through. So again, it's not really going to be a concern moving forward whether QoS numbers will move, whether we have to implement QoS over other airports. Again, this is something that MAVCOM has taken into account, all things held constant.

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Operator [37]

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The next question is from Mr. Lim, Ben from Macquarie.

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Ben Shane Lim, Macquarie Research - Research Analyst [38]

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I just want to -- again, just coming back to that conversation around the PSCs, the RAB. Is it okay if I just recap the conversation? You correct me if I'm wrong. Currently, the adjustment to the PSC that was just announced today is really between the government and the airlines. The lowest PSC collection is going to basically come out of the government's pocket. You guys are just the middleman. And this is sort of going to be the status quo October until January 1 when likely the PSCs will be reset according to the RAB framework, depending on what, between you and MAVCOM, you decide how you want to set it up. Thereafter, we can expect -- if there is further sort of PSC interference from the government, any changes would then again be offset versus maybe the user fee or a similar mechanism. Just to make it really clear that you guys are going to be very neutral to this sort of surprises going forward.

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Zeid Abdul Razak, Malaysia Airports Holdings Berhad - Senior Manager of IR [39]

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Thanks, Ben. So as clear as we can be, I think we've always guided that we will not be worse off. Historically, when we speak to investors with regards to the RAB framework, the word flexibility comes up a lot as long as we get that fair rate of return. That's something that we are fine with. The user fee, again, we've guided the investment community, there's always a mechanism or a leverage that the government can use to reduce the charges, and make it more competitive despite it already being competitive. So yes, as long as we're not worse off, we're fine. The RAB framework done by the commission, an independent authority, I think is what's best for the industry moving forward.

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Ben Shane Lim, Macquarie Research - Research Analyst [40]

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Okay. Next thing I want to ask is surrounding the recent incident. Are you guys going to push for more CapEx to upgrade your IT systems? And is there any amount that CapEx that was discussed at MYR 5 billion, how much of that is for upgrading your IT systems?

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Zeid Abdul Razak, Malaysia Airports Holdings Berhad - Senior Manager of IR [41]

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Well, to be honest, I think the amount that we've outlaid so far in the past couple of days is not as high as many would like to think. But again, let the investigative committee, the 6-man panel, come out with its recommendations and findings as well to see whether there are any deficiencies that further need to be addressed. The MYR 5 billion proposed CapEx under the regulatory asset base framework through the commission is something that will take into account all of these things moving forward. So let's see what RAB -- or MAVCOM comes out under the announcement. But it's unfortunate that the disruption happened. It's something that we are serious about and we would like to address regardless of whether there's any findings by the committee. And yes, it's something we will continuously manage.

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Ben Shane Lim, Macquarie Research - Research Analyst [42]

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Maybe to just rephrase my question a bit. Can we expect some CapEx upside?

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Zeid Abdul Razak, Malaysia Airports Holdings Berhad - Senior Manager of IR [43]

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Within the RAB framework, I mean, if it's allowed by the commission, then, of course, we can anticipate that -- sorry, expect that. But it's early to say, honestly. So let's see what numbers they come out in September. And whether that's the right number or not, we will just make it work, as always.

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Ben Shane Lim, Macquarie Research - Research Analyst [44]

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Okay. Could you also -- last question, could you also just share some color on what's driving the international pax growth over in Turkey? And which airlines are sort of adding that capacity and you can see that seems becoming a cause of the domestic loadings?

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Zeid Abdul Razak, Malaysia Airports Holdings Berhad - Senior Manager of IR [45]

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Yes. So when you look at ISG's overall passenger growth, it's not that exciting. International, yes, doing strong, double-digit growth for almost a year now, in fact, on a month-on-month basis. But what's driving it actually is the preference of the passengers in Istanbul.

Again, just as a quick refresher. ISG, our airports located on the Asian side of the Bosporus, of Dana city, and that's where the bulk of the locals live. With the introduction of the new airport in April this year, passengers might find it a bit further to get to, to reach their international destinations. Where there is an international destination on offer by both airports, passengers, or in this case locals, would tend to prefer our airport. Hence, they look at the 2 largest airline groups in ISG, Pegasus and Turkish Airlines. They've consolidated their operations on the international front by reducing domestic frequencies and introducing international frequencies.

So that's something that we're more than happy with. The yields are 5 to 6x better as well from our perspective. And that's driven the PAT for ISG on a stand-alone level from MYR 2 million in 2018 to about MYR 40-odd million for the first half of this year. We hope that trend will continue over the coming quarters. But we come off a higher base now, and that's always positive for us. The introduction of the security charges for international passengers as well has compounded to that growth. That EUR 3, as we mentioned in the first quarter this year, half of it goes to the Government of Turkey, then half almost effectively goes to our bottom line as well. So again, the prospects are looking quite decent in Turkey.

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Ben Shane Lim, Macquarie Research - Research Analyst [46]

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Just a quick follow-up. So based on the airlines sort of capacity additions, how much overall growth can we expect for Turkey going forward?

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Zeid Abdul Razak, Malaysia Airports Holdings Berhad - Senior Manager of IR [47]

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I think to answer that question, you have to look at the opening of the second runway, but there's only so much flights that ISG can handle on a single-runway basis. We actually compared against other airports which effectively got a single runway such as Gatwick and Mumbai. In reality, they actually have 2 runways, a backup runway. But ISG is actually the busiest single runway/single terminal airport in the world.

Now the second runway introduction will help double the aircraft movements. Airlines as well will want to capture that catchment area. ISG does not just serve Istanbul proper. It serves several other major cities such as Bursa in a 2-hour radius. So that growth potential actually is still subjective. It's still early to say. But once the second runway opens, the potential or at least the trajectory in terms of international passenger growth will hopefully continue moving forward.

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Ben Shane Lim, Macquarie Research - Research Analyst [48]

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Okay. And just remind me again when the second runway is going to be completed?

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Zeid Abdul Razak, Malaysia Airports Holdings Berhad - Senior Manager of IR [49]

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I saw a picture online by the authorities. It's called DHMI. It's the authority that actually manages the air side of ISG. This authority is in charge of building the second runway. They have mentioned that it's currently 70% completed in terms of the runway proper. But we anticipate it sometime by the end of first half next year. That was the guidance we were given.

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Operator [50]

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The next question is from Mr. Ahmad from Nomura.

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Ahmad Maghfur Usman, Nomura Securities Co. Ltd., Research Division - VP [51]

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Zeid, for the benefit of the crowd, can you remind us again what is the latest benchmark PSC? And just to correct me if I'm wrong, as I recall, the benchmark PSC for international in klia2 was relatively unique compared to the others. Yes, so just list it up again, the revised benchmark PSC.

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Zeid Abdul Razak, Malaysia Airports Holdings Berhad - Senior Manager of IR [52]

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Ahmad, so for all airports excluding klia2, the international PSC is MYR 80 under the third tariff cycle effective February this year. That is a 13% increase over the previous number. For klia2 international passengers, the benchmark PSC for those passengers under the operating agreement effective February this year is actually MYR 40, again a 13% increase over MYR 35.

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Ahmad Maghfur Usman, Nomura Securities Co. Ltd., Research Division - VP [53]

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Okay. Then domestic, it's a no-brainer because that's already below the actual PSC, right?

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Zeid Abdul Razak, Malaysia Airports Holdings Berhad - Senior Manager of IR [54]

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No. Domestic for all airports other than klia2, the PSC in the benchmark rate under the agreement is about MYR 11, so that's on par with MAVCOM's rate. For klia2, domestic's passengers benchmark rate is actually about MYR 8.

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Ahmad Maghfur Usman, Nomura Securities Co. Ltd., Research Division - VP [55]

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Okay. All right. Okay. On the milestones that we can expect moving forward with regards to MAVCOM, so how would MAVCOM still expect to finalize the PSC framework or the aeronautical framework by end of this month or October when the government has yet to decide what user fee they want to collect from you? Because that forms part of the price cap or pax mechanism.

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Zeid Abdul Razak, Malaysia Airports Holdings Berhad - Senior Manager of IR [56]

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Yes. So I think that question was asked slightly differently earlier, but same answer, whereby we will proceed as per the existing agreement in place, the user fees per the existing agreement goes up by 25 bps each year. So that may be reflected under this to-be-announced RAB, subject to the finalization of the OA. During the implementation of the RAB, so regulatory period 1 from 2020 to 2022, if there's any changes to the operating agreement as expected, then there will be a review back by the commission on whether there'll be any adjustments accordingly. I think that's only fair to all.

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Ahmad Maghfur Usman, Nomura Securities Co. Ltd., Research Division - VP [57]

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Okay. Fair enough. And with regards to this airport [cool-in], any new developments on that aspect?

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Zeid Abdul Razak, Malaysia Airports Holdings Berhad - Senior Manager of IR [58]

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No. Actually, on our part, there's no new developments. But again, I don't think we can emphasize this enough, RAB is a very, very flexible framework. With regards to RAB, we're allowed to recoup back our operating costs and turn a fair rate of return on the asset base. And in the event that our passenger numbers are cannibalized by introduction of a new terminal or new airport which is not operated by us, the RAB, under a price cap environment, will correct the charges per passenger accordingly. So I think that's one reason why we keep on saying this again and again and again, RAB is very good for the industry if executed correctly.

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Ahmad Maghfur Usman, Nomura Securities Co. Ltd., Research Division - VP [59]

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Okay. Okay, on Turkey, so I've been reading some news that there are issues with the current new Istanbul Grand Airport. With regards to the weather, it poses some challenges when it comes to taking off and landing. So have you seen more interest that people just prefer going out to Sabiha Gokcen? So that's one.

And again, within Istanbul context as well, they -- the supposedly increase in the user fee is next year, right, if I can recall it correctly?

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Zeid Abdul Razak, Malaysia Airports Holdings Berhad - Senior Manager of IR [60]

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Okay. On the second question for ISG, the utilization fee for ISG is actually effective this year. January, in fact, we already paid about EUR 115 million effectively. You can see that in the cash flow. Utilization fee payment got more than almost MYR 500 million, if I recall. So that's already in effect. It's there for about 4 more years before the next step-up to about EUR 130 million.

The earlier question on the effectiveness of the new airport, personally, we've never been there ourselves. But what we understand for the locals who live around Istanbul, the preference for our airport is not so much because of the difficulties in terms of the weather, the toll and whatnot. It's more of the geographic location and the accessibility. To reach to the new airport is still via highways, right, buses, taxis and cars. For our airport, there is a metro station a bit further, but not too bad for the locals to come from either side of the Bosporus. That's one.

Second is that it serves a different catchment area. So with the new airport, you see more international passengers, but more inbound, more transit transfer passengers, whereas our airport is more outbound passengers. So again that, I think, will not change regardless of where the winds blow or the source of government issues are and whatnot.

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Operator [61]

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The next question is from Ms. Khee Lim from CIMB.

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Siew Khee Lim, CIMB Research - Head of Research for Singapore [62]

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Just wanted to continue from where Ben left off with regards to the IT system. Could you give us an idea of how much will it cost to replace or rather upgrade the system based on your estimate?

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Zeid Abdul Razak, Malaysia Airports Holdings Berhad - Senior Manager of IR [63]

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We can't at this juncture because, again, we want to wait for the investigation to be completed and whether there are any additional findings accordingly. But whatever it is, the numbers will speak for itself. You can track back in the third quarter earnings. We will show what we've already paid for as a capital expenditure by the third quarter results, I mean, November this year is when we will announce those results, and you can probably see whether there's any significant or insignificant increase in CapEx by then.

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Siew Khee Lim, CIMB Research - Head of Research for Singapore [64]

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Right. And then will this -- is this replacement cost part of the MYR 5 billion CapEx that you proposed to MAVCOM?

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Zeid Abdul Razak, Malaysia Airports Holdings Berhad - Senior Manager of IR [65]

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At this juncture, whatever we incurred is not significant per the media reports. And as a result, it's not inclusive of that MYR 5-odd billion proposed with MAVCOM. But I think that it's something that needs to be replaced and has been since been replaced accordingly.

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Siew Khee Lim, CIMB Research - Head of Research for Singapore [66]

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Right. Okay. Also, on the KLIA disruption, we are all well aware that the airlines are seeking compensation from major airports. How much roughly will it cost? And if MAHB compensate these airlines, how will it go? Is it based on a lump-sum method or via discount over time?

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Zeid Abdul Razak, Malaysia Airports Holdings Berhad - Senior Manager of IR [67]

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We -- I think with these airports, we will look at all these claims on a without-prejudice basis, and we'll act accordingly thereafter. So I think there's no formal claims now. I think we probably have to look at all cases on its respective merit in tandem with the findings of the investigations that are ongoing.

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Siew Khee Lim, CIMB Research - Head of Research for Singapore [68]

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And this -- is there -- did any -- or did the government give any idea on when would they want this to be completed by, this entire investigation?

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Zeid Abdul Razak, Malaysia Airports Holdings Berhad - Senior Manager of IR [69]

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Preliminary findings were by a month. I think that was mentioned in the papers and by the Ministry of Transport as well, within 1 month.

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Siew Khee Lim, CIMB Research - Head of Research for Singapore [70]

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Okay. What's the update currently? Are the flight information displays back to normal? How is it going?

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Zeid Abdul Razak, Malaysia Airports Holdings Berhad - Senior Manager of IR [71]

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Largely, the noncore systems are okay, are operating well. The core systems are already back to normal for the past few days already, in fact. From a priority standpoint, we directed the flow of the network into the critical areas first upon replacement of that asset last Friday. So some passengers, over the past few days, may have received intermittent disruptions for the flight display boards, baggage information display boards, but we've already had backup. And when we say backup, I think these are more robust type of display systems as opposed to what you have probably seen in pictures in the press and whatnot. So rest assured, if you're flying out of KLIA or flying into KLIA over the next few days, hopefully, your journey will not be disrupted other than the fact that the airspace will be closed tomorrow for the fly to of the Merdeka Day celebrations.

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Siew Khee Lim, CIMB Research - Head of Research for Singapore [72]

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Okay. Because the concern is more of the QoS. If it does carry forward to the month of September, then your aeronautical revenue is at risk of the penalty.

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Zeid Abdul Razak, Malaysia Airports Holdings Berhad - Senior Manager of IR [73]

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I think the QoS is something that we always continuously monitor, be it toilets, be it systems, be it WiFi. But that's something that we will do our best to ensure that we have minimized any risk with regards to penalties.

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Operator [74]

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The next question is from Mr. [Zakwan] from PNB.

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Unidentified Analyst, [75]

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I think you can see that your stock is down 5%. I think there is some concern because -- the MAVCOM and MAHB is going through this terrible stress with the RAB to determine the PSCs, and then suddenly you have this announcement by the MOT that the PSCs on one site will be slashed. So -- and in October, the same month that the PSCs for 2020 will be announced.

And on top of that as well, I'm going to echo the question by Ahmad. There's some clumpiness in the timeline because the determination of your user fee as a cost component should come before the revenue component, but the timeline for PSC is in October and then user fees by the year-end. So the question is, from your perspective, do you have an idea of what the holdup on the OA is? Even if you bend back to the user fee and change the PSC later, it's so much to do within such a short time. That's the first part.

And the second is on Turkey. Turkey is currently seeing support from the international side, but the domestic side is still 2/3 of the total volume. So in your Bursa announcement, it's noted that the support from the international side will maybe persist until the end of the year. So my question is on this assumption, what -- on what basis was this assumption made? And also any difference in strategy when both domestic and international are weak?

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Zeid Abdul Razak, Malaysia Airports Holdings Berhad - Senior Manager of IR [76]

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Okay. On the clumpiness of the time line between the RAB and the operating agreement, we understand where these questions are coming from. Perfectly fine. But we have tried to guide the investment community, when it comes to the operating agreement, we've implemented scenarios as a proposal to the government with regards to the RAB or post-RAB period or pre-RAB period. Similarly, with MAVCOM as well, when it comes to the OpEx which is inclusive of the user fees, again, we're guiding MAVCOM that as our operating agreement is not finalized, we would like to go on the assumption that the user fees that form part of the OpEx forecast is on a business-as-usual basis.

So we will make things work at the end of the day. And yes, there has been a lot of room to maneuver in terms of the short timeframe doing that because we have projected and predicted some of these various scenarios over the past few months. So we're running simulations together with MAVCOM as part of the shadow period as well. I think it's important to bring that up. The shadow period is there for a reason to address any concerns.

With finality on the operating agreement, why taking so long, I think is another sub-question to question number one. It is imperative that we protect our shareholders' interest, and the government protects their respective interest as well. And that's why we want to tread very carefully and very lightly with where we're heading in this new operating agreement. So far, so good, because obviously there's any hiccups at all. But I think we want to continue on that trajectory or that trend, that we make sure that we protect everybody at various angles and various scenarios. Like I said, this user fee contra, as announced by the Ministry of Transport, which many may have not appreciated and it's reflected in the share price, is something that has been tried and tested before. So as long as you understand and view it that way, then I don't think we should be seen as a worse-off position.

On the ISG front, Zakwan, so if you take a look back at 2016, there were 2 unfortunate incidents. In May 2016, there was a horrific terrorist attack at Atatürk. And in June -- sorry, July, 2 months later, there was an attempted military coup. Now both incidents were on top of several other spate of terrorist attacks around the whole year for 2016. But despite all of those challenges, ISG still reflected a positive growth on the overall basis, higher for domestic, slightly weak for international. Now that's the worst-case scenario for ISG that has since, as we said earlier, numbers speak for itself, has since transpired.

For 2019, I think the international growth rate will continue to see some strength. Even until, hopefully, early next year, despite the constraints on runway capacity because you would see that ISG can handle up to maybe 50 flights per hour, that's very, very high, as a lot of the planes flying in and out of ISG are narrow-bodies, hence, the government can squeeze in these flights as much as possible. ISG is also a 24-hour airport, but I think that we do close off certain hours for runway maintenance because we can't let the runway be trashed every single time and not maintained at the same time. So the runway maintenance, the movement of flights, all this is also responsibility of the Government of Turkey, not Malaysia Airports alone.

On our part, we have a very strong team in Turkey, led by Turkish locals, along with several prominent Malaysians as well that attract foreign carriers in. You'd see now for the first time, Qatar Airways have started bringing in widebody planes, Emirates as well last year. So we are doing as best as we can to attract traffic. December this year, Malaysia Airlines will fly its first charter flight into ISG for the first time since, what, 10 years we've acquired it. So there's a lot that is being done on our part, but the government is also pulling its weight as well to bring in traffic continuously despite the second runway still taking some time.

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Operator [77]

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The next question is from Mr. Daniel from Hong Leong.

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Daniel Wong, Hong Leong Investment Bank Berhad, Research Division - Research Analyst [78]

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I have questions. For your financial year first quarter, second quarter, how much you're [optimist] in terms of your PSC for the klia2 for the non -- for international (inaudible)?

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Zeid Abdul Razak, Malaysia Airports Holdings Berhad - Senior Manager of IR [79]

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Daniel, you hopefully can understand and appreciate, we don't disclose by airports. Sorry about that.

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Operator [80]

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The next question is from Mr. Ajith from UOB.

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K. Ajith, UOB Kay Hian Research Pte Ltd - Director of Asia Transport Research [81]

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Zeid, most of my questions have been answered, except for CapEx. Perhaps it's early stages, but if you could guide in terms of CapEx guidance for next year, especially given that you're looking at MYR 5 billion for the RP 1 period. Is there something that we can model or tell you already authorized?

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Zeid Abdul Razak, Malaysia Airports Holdings Berhad - Senior Manager of IR [82]

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So in anticipation of the final numbers to be approved and announced by MAVCOM, I think the only thing that we can guide is per what MAVCOM has already published in its June consultation papers. Towards the back end of that paper, you'd see the breakdown of CapEx by regions or clusters and overall as well across the first RP. So you can use that as an indicative number. But again, just a caveat, that's in advance of any finalized numbers by MAVCOM.

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K. Ajith, UOB Kay Hian Research Pte Ltd - Director of Asia Transport Research [83]

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Okay. And another question, this is regarding the write-back of doubtful debts. I think you've wrote back MYR 25 million or MYR 26 million in Q2. In Q1, there was a provision of about a similar amount, MYR 24 million, something like that. Just to clarify that the write-back was related to an earlier provision write-back?

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Zeid Abdul Razak, Malaysia Airports Holdings Berhad - Senior Manager of IR [84]

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Yes. So how we do our write-backs and provisions is that we take into account many things. Under one of the more recent MFRS or accounting standard, there is this what we call expected credit loss as well. We've got our provision -- general provision basis on more than 1 year and of course, on a case-by-case basis, which is specific provisions. So all in, I think for this quarter, 2Q 2019, we recognized about MYR 25 million write-back when you factor in all these 3 major write-back provisions and methodologies.

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K. Ajith, UOB Kay Hian Research Pte Ltd - Director of Asia Transport Research [85]

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Okay. So would it be fair to say that there's a possibility there's going to be further write-backs in the coming quarters?

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Zeid Abdul Razak, Malaysia Airports Holdings Berhad - Senior Manager of IR [86]

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Again, it depends on those several scenarios. So if we have received cash from passengers -- sorry, from customers, if there is past due amounts which are increasing quarter-on-quarter as well, we have to bear this in mind as well. I mean, overall, the revenue does go up, hence, collection also is supposed to go up. But I guess collection be made, so will the receivables. And as a result, some balances actually go past the due amount of 1 year, so we have to make provisions for those as well. It's quite hard to see it.

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Operator [87]

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The next question is from Mr. Thomas from KAF.

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Guan Chuan Soon, KAF-Seagroatt & Campbell Securities Sdn. Bhd., Research Division - Research Analyst [88]

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The first thing is, what is your -- the impact of today's announcement on your EBITDA target?

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Zeid Abdul Razak, Malaysia Airports Holdings Berhad - Senior Manager of IR [89]

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Sorry, Thomas, can you repeat that again? Apologies.

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Guan Chuan Soon, KAF-Seagroatt & Campbell Securities Sdn. Bhd., Research Division - Research Analyst [90]

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The today's announcement by MOT, what is the impact on your EBITDA target for Malaysia?

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Zeid Abdul Razak, Malaysia Airports Holdings Berhad - Senior Manager of IR [91]

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There is no impact for this time being, as you can see from the circular issued by the Ministry of Transport. This PSC increase is to be addressed via the user fee contra. So we do not expect any significant impact or any impact for the time being.

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Guan Chuan Soon, KAF-Seagroatt & Campbell Securities Sdn. Bhd., Research Division - Research Analyst [92]

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Okay. You're assuming you will be fully compensated for the shortfall of MYR 23? Is that...

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Zeid Abdul Razak, Malaysia Airports Holdings Berhad - Senior Manager of IR [93]

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Shortfall of MYR 23, again, has to be assessed on an overall basis, benchmark rates versus whatever the rates are being charged. So we don't like to refer it to as a shortfall of MYR 23, we look at it on an overall basis. But yes, we assume that we are made whole on an absolute term.

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Guan Chuan Soon, KAF-Seagroatt & Campbell Securities Sdn. Bhd., Research Division - Research Analyst [94]

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Okay. Then if that is the case, what -- has there been any MARCS PSC for the first half?

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Zeid Abdul Razak, Malaysia Airports Holdings Berhad - Senior Manager of IR [95]

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Yes, there is, it's about MYR 30-odd million.

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Guan Chuan Soon, KAF-Seagroatt & Campbell Securities Sdn. Bhd., Research Division - Research Analyst [96]

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Is that for the first half?

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Zeid Abdul Razak, Malaysia Airports Holdings Berhad - Senior Manager of IR [97]

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MYR 31 million.

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Guan Chuan Soon, KAF-Seagroatt & Campbell Securities Sdn. Bhd., Research Division - Research Analyst [98]

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Could you split that between the first Q and the second Q?

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Zeid Abdul Razak, Malaysia Airports Holdings Berhad - Senior Manager of IR [99]

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No. We can, but I don't think it will make much difference because it's, again, based on the passenger movements for the period.

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Guan Chuan Soon, KAF-Seagroatt & Campbell Securities Sdn. Bhd., Research Division - Research Analyst [100]

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Since we're here at MARCS, do you have the MARCS ERL as well?

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Zeid Abdul Razak, Malaysia Airports Holdings Berhad - Senior Manager of IR [101]

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Yes, we do. So for MARCS ERL for the period, which is inclusive in our slides as part of the overall PSC, PSSC, the MARCS ERL for year-to-date June is about MYR 46 million.

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Guan Chuan Soon, KAF-Seagroatt & Campbell Securities Sdn. Bhd., Research Division - Research Analyst [102]

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Okay. Could you -- assuming that you are not compensated, this is theoretical, what would be the impact on your EBITDA or your bottom line if -- in relation to MOT's announcement today?

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Zeid Abdul Razak, Malaysia Airports Holdings Berhad - Senior Manager of IR [103]

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It is not an assumption we would like to consider at all, and that's why I think we would do what's best and what's required to make sure we are made whole, Thomas. So for this, we're not answering that question directly.

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Guan Chuan Soon, KAF-Seagroatt & Campbell Securities Sdn. Bhd., Research Division - Research Analyst [104]

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Okay, fine. The MYR 50 change today, could that be revised under the RAB next year still?

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Zeid Abdul Razak, Malaysia Airports Holdings Berhad - Senior Manager of IR [105]

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Under the RAB, we'll have an introduction of new rates perhaps by even facility level as well. So the larger the facility, the higher the PSC. So let's wait for end of September or perhaps early October for MAVCOM and us to come to a landing on RAB.

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Guan Chuan Soon, KAF-Seagroatt & Campbell Securities Sdn. Bhd., Research Division - Research Analyst [106]

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So you will still be subject to change -- possible change when the RAB is implemented? Is that the case?

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Zeid Abdul Razak, Malaysia Airports Holdings Berhad - Senior Manager of IR [107]

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Yes. Thank you, Thomas.

So if there's no further calls, I hope we've managed to address as best as we can based on what we can share at this point in time anyway. We'd like to wish everybody -- thank you once again for providing your feedback to MAVCOM and (foreign language). Thank you very much.