Highlights/ Comments

As  expected,  MAHB  announced  renounceable  rights issue  exercise  of  274.8m  rights  shares   on  the  basis  of  1 for  5  existing  MAHB  shares.  The  final  issue  price  shall  be determined  on  or  before  the  announcement  of  the Entitlement date.

Based on the  illustrative price of RM4.80 (29.2% discounts to  the  Theoritical  Ex -Rights  Price  –  TERP  of  RM6.78), MAHB will raise RM1.3bn:

MAHB  intends  to  seek  irrevocable  undertaking  form  its major  shareholder,  Khazanah  to  subscribe  in full for their entitlements to the Rights Shares.

With  share  base  expansion  of  20%   and  the  additional earnings from the 40% stake in ISGA at  RM17m (FY15) and RM37m  (FY16),  the  net  EPS  dilutions  are  estimated  at -10.5%  and -8.9%  respectively in FY15 and FY16.

Post  the  acquisition  (by  1Q15),  MAHB  will  need  to consolidate  the  RM1.9bn  loan  of  ISGA  and  RM47m expenses  related  to  the  acquisition.  Consequently, gearing  ratio  (debt/equity)  will  increase  from  0.70x  to 0.84x   (based on Sept 14 balance sheet), which is still  within existing Sukuk covenant  of 1.25x.  

We  advise  shareholders  to  subscribe  to  the rights issue, given  the  significant  discount  to  TERP.  Furthermore,  we remain  positive  on  MAHB’s  long-term  growth (both  domestic and foreign  airports).

Risks

World  crisis  (i.e.  war,  tourism  and  epidemic outbreak); Cost overrun  and  operation  disruption  in  KLIA2;  Development  of high  speed  train  between  Singapore  and  Malaysia;  Major movement  of airlines from KLIA to KLIA2.

Rating

BUY

Positives  –

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

Negatives  –

• Low liquidity; and
• Short-term  impact on traffic  following  MAS mishaps.

Valuation

• Despite  short-term  weaknesses,  we  remain  positive  on MAHB’s  long-term  earnings  growth.  Maintained  BUY  with unchanged  TP  of  RM8.90  (based  on  SOP).  Our  TP  will  be adjusted  to RM8.10  post the completion of ISGA acquisition.

Source: Hong Leong Investment Bank Research - 11 Nov 2014