Malaysia Airports Holdings Bhd
(Oct 7, RM7.26)
Maintain “sell” with fair value of RM7.82: Malaysia Airports Holdings (MAHB) reported that total passenger movement in August 2014 declined 5.2% year-on-year (y-o-y) to 6.9 million. This was led by a 6.4% drop in domestic passenger movement and 3.8% drop in international passenger movement.
The decline in passenger movement in August 2014 marked the second contraction in 2014. The cumulative year-to-date growth has moderated to 7.7% from 9.8% a month ago in the aftermath of Malaysian Airlines flights MH370’s and MH17’s incidents.
According to the management, KLIA’s China sector continued to experience a double-digit decline while the Europe sector recorded a 4.1% growth in August 2014. Looking forward, the management expects passenger movement to remain soft during the year-end peak, with school holidays and festive seasons.
Separately, MAHB announced that the company had received a notice and offer of right of first refusal (ROFR) on Oct 2, 2014, in relation to TAV Havalimanlari Holding AS’s offer to acquire from Limak and Limak Yatirim their collective 40% equity stake in Turkey’s Istanbul Sabiha Gokcen International Airport (ISG) and LGM Havalimani Isletmeleri Ticaret Ve Turizm AS (LGM) for €285 million (RM1.17 billion). This offer came on the heels of the lapse of the first ROFR offered to Malaysia Airports MSC Sdn Bhd, a wholly-owned subsidiary of MAHB. MAHB has up to 10 business days to accept the offer.
We reiterate our view that the offer consideration is expensive for minority stakes, which is priced at a 36% premium to the controlling block, which MAHB purchased in late-2013 for a total consideration of €209 million. Also, we believe the acquisition could possibly breach the covenant attached to the group’s sukuk programme that is MAHB shall maintain a debt-to-equity ratio of not exceeding 1.25 times throughout the tenure of the sukuk programme.Note that in the previous acquisition of the 40% stake in ISG and LGM, the company continued to treat ISG and LGM as joint controlled entities despite having a 60% stake in both companies. This led us to believe that ISG and LGM could have massive amount of debts, which would increase MAHB’s debt-to-equity ratio to more than 1.2 times after consolidating their debts.
No change to our earnings projections, pending MAHB’s response to the offer. However, in the case MAHB chooses to acquire the remaining 40% for €285 million, funding may come from placement of shares thus resulting in earnings per share dilutions.
Maintain “sell” on MAHB. — TA Securities, Oct 7
This article first appeared in The Edge Financial Daily, on October 8, 2014.