Highlights

MAHB has entered into an MOU with FPH (First Philippine Holdings) to form FPA (First Philippine Airports consortium) to bid for MCIA (Mactan-Cebu International Airport) concession.

MCIA concession involved 1) construction of a new passenger terminal with capacity of 8m passenger/year; 2) renovation and expansion of the existing terminal (to be converted into an exclusive domestic terminal); and 3) operation, maintenance and management of the terminals.

Currently, MCIA is the second largest airport in the Philippines, with a capacity of 4.5m passenger/year. Due to the boom of tourism, MCIA has witnessed significant growth in traffic and handled 6.8m passenger (5.3m domestic; 1.5m international), severely outpaced its capacity in 2012.

Comments

The concession is worth some PHP17.5bn (RM1.3bn) and has attracted 7 prequalified consortium bidders which consist of both local and international players such as Changi Airports, Incheon Airport, GMR Infrastructure etc.

The concession period is 25 years, and the winning consortium has the flexibility to augment the terminal capacity.

Positive on the announcement, in-line with MAHB’s long term strategic plan to grow and diversify income through international investments. Currently it has stakes in Sabiha Gocken Airport, Turkey (25%), New Delhi Airport, India (10%) and Hyderabad Airport, India (11%). It loses Male Airport, Maldive (23%) concession back in Nov 2012.

Assuming JV of 60:40 (FPH:MAHB) and capital structure of 80:20 (Debt:Equity), MAHB is likely to inject ~RM100m into the consortium, if the consortium win the concession. We expect MAHB to fund the project from internal funds or borrowings.

We expect the tender to be tough, given the participation of other major international airport operators. The winner of the project will be announced sometime in Jan 2014.

Risks

• World crisis (ie. war, tourism and epidemic outbreak)
• Delay in the completion of KLIA2
• Development of high speed train between Singapore and Pulau Pinang.
• Major movement of airlines from KLIA to KLIA2.

Forecasts

Unchanged.

Rating

BUY

Positives –

• Monopoly of airports operation in Malaysia (except Senai)
• Main beneficiary of strong air traffic into Malaysia and 2014 Budget, in line with government initiatives to boost tourism sectors.
• Potentially higher non-aeronautical revenue.

Negatives –

• Low liquidity.

Valuation

Maintained BUY with unchanged TP of RM9.25, based on DCFE.

Source: Hong Leong Investment Bank Research- 29 Nov 2013