INVESTMENT HIGHLIGHTS

• MAHB forms joint-venture company with BP Aerotech to develop Subang Aerotech Park

• The JV company will be granted the right to sublease approximately 34.7 acres of land near Subang Airport

• Expected timeline for the full completion of Subang Aerotech Park in the next two years

• MAHB’s non-aeronautical revenue to gain in the long run as 4,000 aircrafts are expected to be delivered to ASEAN by 2037

• Notice of Arbitration by SASB to not materially impact MAHB’s financial position

• Maintain BUY with an unchanged TP of RM9.44 per share

Collaboration formed to develop Subang Aerotech Park. MAHB’s wholly-owned subsidiary, Malaysia Airport (Subang) Sdn Bhd (“MA Subang”), on 22 March 2019, entered into a Joint Venture Agreement (“JVA”) with BP Aerotech (Subang) Sdn Bhd (“BP Aerotech”). The JV (70% BP Aerotech; 30% MA subang) will undertake the development of an aerospace and high-tech park (“the Aerospace Developments”) within the Subang Aerotech Park located in Subang, Selangor, Malaysia.

Modes of engagement. According to MAHB’s 2017 Annual Report, approximately 60 acres of land near the Subang Airport will be intended for developing the Subang Aerotech Park. Out of this, circa 34.7 acres will be granted the rights to sublease for the JV company by MAHB for the necessary aerospace related developments. Another 7 acres of land in the Subang Aerotech Park has been allocated for UK-based Senior Aerospace UPECA’s built-to-suit facility announced in March 2018.

What’s in it for MAHB? A capital expenditure of roughly RM40m has been allocated for the Subang Aerotech Park which is expected to be fully completed in the next two years. As such, we do not expect any meaningful earnings accretion within this time period. However, once completed, MAHB will gain in terms of non-aeronautical rental revenue through leasing activities with aerospace related companies. In 2018, rental revenue contributed around 41.0% of MAHB’s non-aeronautical segment from Malaysian operations. On a longer term, the Subang Aerotech Park will equip MAHB to attract more aerospace related activities in Malaysia as 4,000 new aircraft are expected to be delivered to the ASEAN region by 2037.

Arbitration notice by SASB to be immaterial. On a separate note, MAHB received a notice of arbitration from Segi Astana Sdn Bhd (SASB), claiming against MAHB for the sum of RM70m in respect of alleged losses and damages pertaining to the delay in the commencement of the operations of KLIA-2 Integrated Complex. MAHB on the same date issued a Notice of Arbitration against WCT Berhad and SASB to recover fixed monthly charges of RM0.96m for the supply of chilled water for the cooling system of the KLIA-2 Integrated Complex. Should MAHB not be successful in challenging the claims by SASB, the impact would not be material to MAHB’s day-to-day operations as the company has generated a net operating cash flow of RM507m on average for the past four quarters. Moreover, MAHB has a net gearing which is still manageable, remaining around 0.42x after considering such payments to SASB.

Source: MIDF Research - 25 Mar 2019