Malaysian  Airports  has  won  the  arbitration  case  involving  its  voided Male  International  Airport  concession.  It  is  currently  studying  and assessing  the  damages,  which  should  be  at  least  MYR21.5m.  This  is positive, but  we do not expect any  significant gain in its share price  as investors  remain  concerned  over  KLIA2’s  operating  costs,  given  its larger infrastructure. Maintain BUY, with an unchanged FV of MYR9.80.

• A legal victory.  Malaysia Airports  announced  yesterday  that  GMR Male International  Airport  Pte  Ltd  (GMIAL)  has  won  the  arbitration  case related to the voided concession agreement for the Ibrahim Nasir airport, which is also known as Male International Airport.  GMIAL is the SPV set up by Malaysia Airports (which  owns a 23% stake) and  its JV partner, GMR  Infrastructure  Ltd  (GMRI  IN,  NR)  in  2010  for  the  purpose  of undertaking  the  airport’s  rehabilitation,  expansion,  modernisation, operation and maintenance works.
• Assessing the value of damages. In a nutshell, the arbitrators declaredthat  the  government  of  Maldives  and  Maldives  Airport  Company  Ltd(MACL)  will  be  liable  for  the  damages,  caused  by  the  wrongful termination  of  the  concession  agreement  and  that  the  collection  and shortfall  in  collecting  the  airport  development  fee  was  allowed  in  the concession.  Malaysia  Airports  is  currently  studying  and  assessing  the amount of damages.  In FY12, it booked an impairment of  MYR68.9m, of which  MYR21.5m  was  its  investment  costs  and  the  remaining MYR47.4m was its share of profits in FY10-12. We understand that GMRInfrastructure  is  seeking  compensation  of  up  to  USD1.4bn  on  the justification of potential losses in future earnings , though we  believe  that such a figure  could be an unachievable  target.  Management  guided that the  minimal sum that Malaysia Airport   will be compensated  for  will be its investment cost, and that any additional amount would be a bonus .
• Maintain BUY.  We view this development  positively,  as this brings in additional cash for the airport operator.  However,  we  do not expect any significant  gain  in  its  share  price  as  investors  remain  concerned  over KLIA2’s  operating  costs,  given  the  airport’s  larger  infrastructure.  We have  already  factored  in  very  conservative  earnings  projections,  which are  below  that  of  the  consensus.  We  maintain  our  BUY  call,  with  our DCF-derived FV unchanged at MYR9.80. 

Source: RHB