• MAHB said yesterday that it will sell its 11% stake in the Hyderabad airport for US$100m, and book an exceptional gain of US$23.7m in 1Q24F.

• Reiterate Add, with SOP-based end-2024F TP of RM7.76; the disposal will help MAHB repay its maturing debts, and/or partially fund its capex spending.

Disposal of Hyderabad Airport Likely to Complete in 1Q24F

• MAHB signed an agreement yesterday to dispose its 11% equity interest in GMR Hyderabad International Airport Limited (GHIAL, not listed), the operator of the Hyderabad International Airport, to subsidiaries of India’s GMR Airports Infrastructure Limited (GMRI IN, not rated). MAHB said that the disposal is likely to be completed in 1Q24F, and will not require shareholder approval.

• The cash disposal price of US$100m (RM478.85m) is 5.4x of MAHB’s 11% share of GHIAL’s net assets, which amounted to US$18.6m (RM88.9m) as at 31 Mar 2023, and 10x more than MAHB’s original cost of investment of US$9.9m. Hence, MAHB’s disposal is intended to monetise the asset, since MAHB has only received US$6.41m in dividends from GHIAL since it had invested in the airport during 2008-09.

• We expect MAHB to repatriate the proceeds of the disposal back to Malaysia, and use it for “capital expenditure, general corporate purposes and to defray the expenses in relation to the disposal”, according to MAHB.

• In terms of the P&L impact, MAHB guided that the disposal price of US$100m will only result in a net exceptional gain of US$23.7m (RM113.5m) in the 1Q24F P&L. This is because MAHB had already revalued upwards the value of its 11% stake in GHIAL to US$76m in previous years in anticipation of a potential sale. We have not incorporated the effects of the proposed disposal of GHIAL into our financial forecasts yet.

The US$100m Cash Proceeds Will Come in Handy

• We are positive on MAHB’s proposed disposal of GHIAL, as the US$100m (RM478.85m) sales proceeds can help MAHB pay for its debts that are coming due. At its Malaysian airport business, MAHB is due to repay RM600m of Islamic Medium-Term Notes (IMTN) on 27 Dec 2024F, and to repay its RM1bn perpetual sukuk bond on 15 Dec 2024F. A further RM500m of IMTN is due to mature on 25 Apr 2025F.

• MAHB is currently investing some RM400m in capex to replace its aerotrain at the KLIA Terminal 1. Further ahead, MAHB also plans to incur capex in relation to the Penang International Airport expansion, as well as the Subang Airport Regeneration Plan, which may both commence from 2024F.

• Potential re-rating catalysts: signing of the new Operating Agreement by end -2023F; higher aeronautical tariffs to be announced by MAVCOM, the aviation regulator, hopefully by end-2023F; rise in international air travel as airlines restore their seat capacities; and recovery in commercial rentals as MAHB terminates rental discounts from 1 Jan 2024F and more airport shops reopen (see 13 Sep 2023 report).

• Downside risks: MAVCOM’s proposed landing and parking tariff increase from 1 Jan 2024F may be delayed, as the regulator has not issued its final proposals, which also needs to be gazetted in Parliament. A hypothetical one-year delay may require a 2% cut in our FY24F core EPS estimate, which is not material, in our view. We believe that the OA-driven Benchmark PSC hike of c.8.5% (our estimate) in Feb 2024F is not at risk.

Source: CGS-CIMB Research - 26 Oct 2023