MAHB’s RM1b Turkish delight

MAHB’s RM1b Turkish delight
Posted on 25 December 2013 - 05:38am
Eva Yeong
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PETALING JAYA (Dec 25, 2013): Analysts are positive on Malaysia Airports Holdings Bhd's (MAHB) RM1 billion acquisition of a 40% stake in Istanbul-Sabiha Gocken (ISG) Airport from GMR Group.

The airport operator announced on Monday that it had exercised its first right of refusal to buy over joint-venture partners GMR Infrastructure Ltd (GMRI) and GMR Infrastructure (Global) Ltd's (GMRIG) 40% stake each in two companies that manage the airport in Turkey and other services including the hotel, retail outlets and lounge services.

The acquisition will be settled with a total cash consideration of RM1 billion and is expected to lift MAHB's stake in ISG Airport from 20% to 60% while the remaining 40% stake is still held by Limak Holdings.

MIDF Research has maintained its "neutral" call on the Malaysian airport operator with an unchanged target price of RM7.63, with a positive view of the acquisition in the long term.

"Nonetheless, the ISG Airport operation is unlikely to break even in the next few years. Pending more guidance from MAHB management on the business turnaround plan of ISG airport, we put out 'neutral' recommendation under review with unchanged target price of RM7.63," it said in a report yesterday.

According to MIDF, MAHB seeks to fund the RM1 billion acquisition via issuance of 123.2 million shares via private placement with an indicative price of RM8.09 per share.

"We believe that it will not be a hurdle for MAHB to place out the new shares as it will be supported by its existing major shareholders.

"The enlarged share base will enable MAHB to maintain its gearing ratio at below 1.0 times which is essential to reaffirm its debt rating," it said.

It added that the airport, which achieved a compounded annual growth rate of 31.2% in terms of total passenger traffic for the last five years, is expected to maintain its double-digit growth in traffic for the next few years before reaching its full capacity of 25 million passengers.

The projected growth is due to the airport's strategic location which is at a middle point between Europe and Asia.

"Even though the accumulated associate losses incurred by ISG had exceeded its initial investment capital, MAHB is not required to recognise the loss in its earnings. For the business turnover, we may see possible breakeven profit for ISG in 2016/2017 onwards.

"While ISG Airport is still loss-making albeit blessed with good traffic growth factor, we view the transaction as to be within the mid-range of the enterprise value/ earnings before tax interest depreciation and amortisation (ebitda) multiple and fair in terms of valuation."

Hong Leong Investment Bank (HLIB), meanwhile, has maintained its "buy" call on MAHB with a target price of RM9.25, but is reviewing its recommendation pending further clarification on the airport operator's oversea ventures and surrounding land developments.

HLIB said it is positive on MAHB due to the monopoly of airports operation in Malaysia (except Senai), potentially higher non-aeronautical revenue and it being the main beneficiary of strong air traffic into Malaysia which is further boosted by government initiatives announced in Budget 2014.

However, it views MAHB's low liquidity as a negative factor with risks such as another delay in the completion of KLIA2, the development of the high speed rail between Singapore and Penang, and major movement of airlines from KL International Airport to KLIA2.

HLIB noted that ISG Airport had been making losses due to the heavy burden of concessionaire fees and interest expenses but remained positive on the acquisition as MAHB is currently not recognising any contributions from ISG Airport, given the accumulated losses has exceeded its investment.

"We are positive on the acquisition given that ISG Airport is gaining pace from strong traffic growth and earning cash (ebitda) positive, which ensure operational sustainability," it added.

MAHB's share price closed 23 sen lower at RM9.55 yesterday, with 660,000 units changing hands.