INVESTMENT HIGHLIGHTS

• Disposal of MAHB’s 11% stake in GHIAL terminated

• Current net gearing levels still manageable even without utilising the proceeds to pare down debts

• MAHB’s remaining stake in GHIAL could pave way for more Indian-based airlines to fly to Malaysia

• Maintain BUY on the with unchanged TP of RM9.88 per share

Disposal of stake in Hyderabad Airport terminated. MAHB announced that it had terminated its plan to sell its 11% stake in GMR Hyderabad International Airport Ltd (GHIAL) to GMR Airports Ltd for USD76.1m or approximately RM314.6m. The automatic termination of the share purchase agreement was caused by the failure of GMR Airports to complete their obligation in accordance with the terms of the agreement by 31 December 2018.

Financial impact. The gain from the disposal was estimated to be RM255.1m. Should MAHB have the opportunity to utilise this gain to pare down its debt, MAHB’s net gearing ratio could have been decreased from 0.32x to 0.29x as of 30 September 2018 while enabling MAHB to reduce finance costs by approximately 8.9% per year. Notwithstanding this, we believe that the current net gearing level of MAHB is still manageable.

Our view. While the termination puts a hold to the unlocking of MAHB’s investment in India, we opine that MAHB could still leverage on its stake in GHIAL to attract more Indian-based airlines moving forward as part of its global transit network. Recall that in November 2018, the commencement of flights of Indian low-cost airline, IndiGo Airlines to klia2 partially contributed to the 3.9%yoy growth in international passengers, the largest in three months, pushing the load factor to 77.8%, 1.7ppts higher than a year ago. Therefore, we do not discount the possibility of more flight arrangements with IndiGo airlines as it commands a market share of 43% in India as of November 2018, making it India’s largest passenger airline.

Earnings forecast. Since the proposed divestment was yet to be completed, we did not make any adjustments to our earnings estimates previously. Hence we are maintaining our earnings forecast for FY18 and FY19 following the termination of the divestment plan.

Riding on a positive trajectory. We believe that MAHB is riding on a positive trajectory based on its latest passenger data. Moreover, we expect MAHB’s efforts in not only attracting more new airlines but also offering increased connectivity to weigh on the effects of the departure levy set to be imposed in June 2019 for outgoing international passengers. For instance, TUI Airways has commenced their first flight from Birmingham to Langkawi in December 2018. We also believe that the overall tourism initiatives outlined in Budget 2019 could uphold the demand and support the overall load factor at MAHB airports.

Source: MIDF Research - 3 Jan 2019