Highlights

MAHB  announced  that  it  is  acquiring  the  remaining  40% stake  (existing  stake  of  60%)  in  Istanbul-Sabiha  Gocken Airport  (ISGA)  from  Limak  Group  for €285m  or  RM1.2bn  (vs.

HLIB’s 

Valuation of  €255m  and  acquisition  of  GMR’s  40% stake  at  €225m).  MAHB  is  confident  of  ISGA’s  long  term prospect, given  the strong tourism growth in Turkey.

MAHB  has  not  finalized  the  funding  structure  for  the purchase.  We  believe  that  MAHB  will  have  to  raise  equity (right  issue  and  private  placement)  in  order  to  sati sfy  its existing  debt  covenant.  Based  on  our  estimation,  the potential  EPS  dilution  impact  is  3-5%  in  FY15-16,  after taking  into  account  of  higher  share  base  and  incremental earnings  from the additional stake in ISGA.

Upon  completion  of  the  acquisition  by  early  2015,  MAHB is expected  to  assume  an  additional  liability  of  €27.3m (RM113m)  and  financial  commitment  of  €21.0m  (RM86.9m), as  well  as  consolidating  ISGA  into  its  books,  which  will deteriorate  its balance sheets (ISGA has net liabilities).

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

We  are  slightly  negative  on  the  acquisition  given  the pricing is  slightly  above  our  fair  value,  the  negative  EPS  dilution impact  and ISGA consolidation will weaken MAHB’s balance sheet.  Nevertheless,  MAHB  is  confident  that  ISGA  will turnaround  in 2015, and contribute  positively to the group.

Risks

World  crisis  (ie.  war,  tourism  and  epidemic  outbreak); Development  of  high  speed  train  between  Singapore  and Malaysia; Major movement  of airlines from KLIA to KLIA2.

Forecasts

Unchanged,  pending  further  information.

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

Despite  the  short-term  weaknesses,  we  remain  positive  on MAHB’s  long  term  growth.  Maintained  BUY  with  unchanged TP of RM8.90 (based on SOP).

Source: Hong Leong Investment Bank Research - 24 Oct 2014