Highlights

MAHB announced that it is acquiring another 40% stake (existing stake of 20%) in Istanbul-Sabiha Gocken Airport (ISGA) from GMR Group for €225m (RM1.008bn). The acquisition price is based on 15x EV/EBITDA, vs. the historical transacted valuation range of 10-35x EV/EBIDTA.

MAHB will fund the acquisition through private placement exercise of up to 10% of its issued shares at RM8.09/share (17.3% discount to last traded price of RM9.78/share), raising total of RM997.05m and internally generated funds of RM11.1m. The placement exercise will result in earnings dilution of 9.1% to the existing shareholders.

Upon completion of the acquisition by 1H14, MAHB is expected to assume an additional liability of €35.9m (RM160.9) and additional financial commitment of €77.8m (RM348.6).

Furthermore, MAHB will recognize ISGA as a jointly controlled entity (previously associate) despite holding effective stake of 60%.

Note that ISGA had been making losses all the years due to heavy burden of concessionaire fees and interest expenses.

We are positive on the acquisition given that ISGA is gaining pace from strong traffic growth and earning cash (EBITDA) positive, which ensure operational sustainability. Currently MAHB is not recognizing any contributions from ISGA, given the accumulated losses has exceeded its investment.

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, as MAHB has stopped recognized losses from ISGA, after the accumulated losses depleted MAHB’s investment value into ISGA.

Rating

BUY (Under Review)

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

We are reviewing our recommendation on MAHB, pending more clarification on its oversea ventures and surrounding land developments.

Source: Hong Leong Investment Bank Research - 24 Dec 2013