Highlights

• MAHB has announced the disposal of its 10% equity interest in Delhi International Airport (DIAL) to major shareholder GMR Airports for US$79m (RM292.6m), as MAHB intends to realize its investment value in DIAL, in line with its long term strategy to enable significant influence over operational decision making in its investments. Note that India restrict s foreign ownership at 49%.

• The net proceeds of RM292.6m from the disposal will be mainly used to redeem its debentures of US$73m (RM270m), with the remaining being used as working capital.

• MAHB is expected to realize a net gain of RM21.7m (1.6sen/share) from the disposal exercise, after taking into account the premium on the redemption of the Debentures and expenses of RM0.5m.

• We are overall positive on the disposal given the high valuation as well as improve MAHB cashflow.

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.

Forecasts

• We are maintaining our forecast, given that DIAL is recognized under investment level (MAHB will only recognize dividend income from DIAL and not equity account DIAL reported profit s/losses). Note that MAHB has not received any dividend from DIAL in the past.

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 ; and
• Potentially higher non-aeronautical revenue.

Negatives

• Low liquidity; and
• Short-term impact on traffic following air incidents.

Valuation

• We remained positive on MAHB’s long term growth potential. We have not included the potential upside from concession extension and passenger tariff revision for KLIA2. Maintained BUY with unc hanged target price of RM8.30 (RM7.70 ex-rights) based on SOP.

Source: Hong Leong Investment Bank Research - 25 Mar 2015