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Malaysia Airports Holdings Bhd
(Nov 11, RM6.88)
Downgrade from “market perform” to “underperform” with a lower target price (TP) to RM6.77 from RM7.4
6: Yesterday, Malaysia Airports Holdings Bhd (MAHB) made an announcement that they are proposing a rights issuance on the basis of one rights share for every five existing MAHB shares for the acquisition of 40% collective equity stake in Istanbul Sabiha Gökçen Uluslararasi Havalimani Yatirim Yapim Ve Isjetme AS (ISG) and Havalimani Isjetmeleri Ticaret Ve Turizm AS (LGM).

Based on an illustrative rights issue price of RM4.80, it would represent approximately a 28.4% discount to its theoretical ex-all price price of RM6.70.

The proposed rights issuance by MAHB to fund the acquisition of the remaining 40% stake in ISG and LGM amounting to €285 million (RM1.18 billion) was one of the funding options that was widely anticipated by the market.

The rights issuance would allow MAHB to maintain its triple A credit rating without breaching its debt covenant of a gearing of 1.25 times.

Post-acquisition of the remaining 40% of Sabiha Gocken International Airport (SGIA) with the proposed rights issuance which would raise up to RM1.3 billion, is expected to raise its gearing ratio closer to 0.9 times after assuming all the debts from SGIA.

However, post the proposed right issuance, we should see its financial year 2015 (FY15) price to earnings ratio increase from 50.3 times to 57.1 times after factoring in the contribution from SGIA as the additional earnings to FY15 from the remaining 40% stake is not enough to negate the dilution impact from the rights issuance based on FY15.

In the near term, we expect MAHB to continue pursuing its operating agreement (OA) extension which it is targeting to conclude by year-end, and should it be able to extend the OA, this could lower its depreciation cost from klia2.

Malaysia-Airports_theedgemarketsAs for the acquisition of the remaining stake in SGIA, we expect the deal to be concluded by the end of the first half of 2015 (1H15) post rights issuance.

No changes to our FY14 forecasts. However, we have fine-tuned our FY15 earnings estimate higher by 6% from RM183.2 million to RM193.5 million as we factor in SGIA’s contributions.

Following the announcement of the proposed rights issuance, we adjusted our sum-of-parts driven TP lower by 9% from RM7.46 to RM6.77 after factoring in the increased share base arising from the rights issuance and also 100% contribution from SGIA.

Following our reduction in TP, we downgrade MAHB to “underperform” (from “market perform”) as the rights issuance is not earnings accretive in the near term.

Risks are the inability to maintain its dividend commitment as per guided previously, significant drop in passenger numbers due to catastrophic events and higher-than-expected operational costs. — Kenanga Research, Nov 11

 

This article first appeared in The Edge Financial Daily, on November 12, 2014.

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