Upside risks for MAHB’s stake in Turkey airport

by **Cals** Tue 08 Jul 2014, 08:47

Business & Markets 2014

Written by CIMB Research

Monday, 07 July 2014 11:05

Malaysia Airports Holdings Bhd
(July 4, RM8)
Maintain hold with target price of RM8.07: We visited Turkey recently to get a handle of the prospects at the Sabiha Gokcen (SAW) airport in Turkey, of which MAHB now owns 60%. We conclude from our thorough analysis of the dynamics of the Turkish aviation industry that the growth outlook for both airlines and airports in Turkey is bright. The country has a low aviation penetration rate among its large population. Both Turkish Airlines (THY) and Pegasus Airlines have large aircraft order books. Low-cost carrier penetration rates are still low in Central Asia, North Africa and the Middle East, which surround Turkey. Finally, the government is committed to infrastructure development, having commissioned a third airport in Istanbul and a second runway for SAW.

In our base case forecast, we believe that SAW is worth €620 million (RM2.69 trillion) on a 100% basis, against €505 million in the bear case and €872 million in the bull case.

On April 30, 2014, MAHB purchased an additional 40% stake in SAW for €209 million (taking its stake up to 60%), implying a valuation of €523 million for the whole airport. Therefore, our base case valuation of SAW is 19% above the price MAHB paid, with the bull case 67% above and the bear case only 3% below. For MAHB as the new majority shareholder, the risks of its acquisition are skewed to the upside.

Our end-2014 target price for MAHB reflects our base case assumption that MAS will cut its flights on Jan 1, 2015 by 14% and its passenger numbers will drop by 18%, in response to its rising losses. The current share price appears to reflect these concerns already.

Conversely, if the government allows MAHB to raise its passenger tariffs at klia2 in May 2015, there may be significant upside to the discounted cash flow.

As with SAW, the risks to MAHB’s Malaysian business also look skewed to the upside. — CIMB Research, July 4

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This article first appeared in The Edge Financial Daily, on July 7, 2014.