Malaysia Airports Holdings Bhd
(Dec 18, RM6.56)
Maintain “hold” with a target price (TP) of RM6.58. We revised some assumptions after reviewing the recently-published financial statements for Istanbul Sabiha Gokcen International Airport (ISG).

Post-adjustments, we expect ISG to register €27.4 million (RM116.85 million) net loss in financial year 2014 (FY14), before turning around to €1.6 million/€25.1 million net profit in FY15/FY16.

The group’s 49%-owned subsidiary, Malaysia Airports Consultancy Services Middle East LLC (MACSME), has secured a 3+2 year repair and maintenance service contract from New Doha International Airport (NDIA). The contract value is RM192 million.

We conservatively assume 30% earnings before interest and tax (EBIT) margin for the contract (nine months 2014 [9M14] EBIT margin for the segment is 37%).

MAHB has completed the issuance of RM1 billion perpetual sukuk at 5.75%, and will use RM450 million of the proceeds to repay short-term loans. We have pencilled in the annual distribution payments and associated interest savings in our FY15/FY16 earnings.

We also consolidated ISG’s financials into MAHB as we expect the acquisition to be approved at the upcoming extraordinary general meeting on Dec 23. We estimate MAHB’s consolidated gearing level will fall to 0.4 times by end-FY15, after accounting for the recent RM1 billion perpetual sukuk and the upcoming rights issue.

We trimmed our ex-rights TP to RM6.40 based on the sum-of-part valuation. It would be RM6.70 on a pre-rights basis, assuming RM4.80 issue price for the rights shares. Our TP implies 36 times/22 times FY15/16F earnings per share. — Alliance DBS Research, Dec 18

This article first appeared in The Edge Financial Daily, on December 19, 2014.