MAHB’s balance sheet not strong enough to absorb airport

by **Cals** Sun 21 Sep 2014, 18:51

Business & Markets 2014

Written by Maybank IB Research

Friday, 19 September 2014 10:01

Malaysia Airports Holdings Bhd
(Sept 18, RM7.31)
Maintain hold with target price of RM6.90: TAV Airports Holdings, a leading airport operator in Turkey, is ready to acquire Turkish company Limak Holdings’ 40% stake in the Sabiha Gokcen International airport (ISG) in Istanbul for €285 million (RM1.19 billion), which is 36% higher than the price (€209 million) that MAHB paid to acquire a 40% stake in ISG on April 30, 2014.
Technically speaking, TAV is a competitor given that it is the owner of the Istanbul Attaturk Airport (IST). MAHB has yet to respond to the deal and has 10 business days to state its intention to exercise its first right of refusal. We expect MAHB to respond by the end of September.
The ball is now in MAHB’s court (it now holds a 60% stake in ISG). If it is acquiescent, it will become partners with a world-class airport operator with decades of experience in Turkey.
We see this as a positive move as both parties can harness their skills and experience to turn ISG into a better airport.
If MAHB does exercise its right, it has to raise debt or possibly raise new equity to fund the acquisition. While we concur that ISG is a great asset, MAHB does not have the balance sheet strength and cash flow to absorb it at this point of time.
Furthermore, full ownership of a critical national asset by a foreigner almost always invites resistance from the nationalist and opposition political parties.
As such, we maintain “hold” with an unchanged target price of RM6.90, based on 10.5 times 2015 enterprise value/earnings before interest, taxes, depreciation and amortisation, which is in line with the global peer average. — Maybank IB Research, Sept 18

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This article first appeared in The Edge Financial Daily, on September 19, 2014.[/size]