News  Malaysia Airports (MAHB) has entered into a Memorandum of Understanding with First Philippine Holdings Corporation (FPH), to be part of First Philippine Airports consortium that would: (i) jointly participate as a consortium partner for the bidding process of Mactan-Cebu International Airport (MCIA), Cebu, Philippines for the construction of a new passenger terminal, renovation and expansion of the existing terminal, operation, maintenance and management of the terminals, and other works at the Airport, and (ii) set up a joint-venture company if the consortium is declared as the winning bidder, to undertake the Project of the Airport.

Comments  We are not entirely surprised with MAHB’s move to join FPH as a consortium partner to bid for the Mactan-Cebu Airport project as MAHB had always been looking for potential opportunities abroad. To recap, MAHB has invested in three overseas airport (two in India and one in Turkey), and they had previously tried to bid for Stansted Airport back in 1Q13.

 MCIA is located on Mactan Island in Cebu Province of the Central Visayas area in the Philippines. Strategically located, the airport has witnessed a significant growth in traffic and handled 5.3 million domestic passengers and 1.5 million international passengers in 2012. The MCIA project will be the first PPP airport project under the Aquino administration and believed to cost about PHP17.5b or USD400m (c.RM1.3b) equivalent.

 As of 3Q13, MAHB’s gearing and net gearing stood at 0.8x and 0.7x, respectively. Based on an 80:20 debt to equity ratio assumption, the consortium might need to fork out at least c.USD80m/c.RM260m in order to secure financing for the project. While the JV details between MAHB and FPH has yet to be finalised, we believe there would be no issue for MAHB to finance the project without breaching its debt covenant.

Outlook  We are still optimistic on MAHB’s outlook underpinned by steady traffic growth and believe the next re-rating catalyst would be the upcoming PSC revision and Concession Agreement Extension with the government.

Forecast  No changes to our earnings estimate.

Rating Maintain MARKET PERFORM

Valuation  We are keeping our TP of RM8.48 which based on SoP, implying 22.5x PER to our FY14E EPS.

Risks to Our Call A significant drop in passenger numbers due to catastrophic events.

Source: Kenanga