Friday 29 Mar 2024
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Malaysia Airports Holdings Bhd
(March 25, RM7.05)
Maintain neutral with a target price of RM7.53:
Malaysia Airports Holdings Bhd (MAHB) has announced that it has entered into a conditional share sale agreement (SSA) with GMR Airports Ltd (GMR) for the disposal of its 10% equity interest in Delhi International Airport Pte Ltd (Dial) for US$79 million (RM289.14 million). Dial has an exclusive right to operate and maintain the Indira Gandhi International Airport (Delhi Airport) for 30+30 years starting April 2006. The sale price translates into a price-earnings ratio of 12 times and price-to-book value of 3.3 times, which we deem fair for a non-controlling minority stake.

We are not surprised by the divestment as management had earlier indicated their intention to dispose of assets which they are not able to exercise decision making and exert significant control over. Foreign ownership in Dial is restricted to not more than 49%. We believe that MAHB’s 11% stake in Hyderabad Airport could be next on the divestment list. In addition, we also believe management favours assets which they can wholly owned such as Istanbul’s Sabiha Gocken International Airport (SGIA).

Management has said they are constantly on the lookout for foreign assets or airport management contracts in order to diversify geographically. 

MAHB had purchased the 10% stake in Dial over five transactions from April 2006 to October 2008 for a total sum of US$57.6million. At the disposal price, MAHB will book a net gain on disposal of RM21.7 million after deducting debentures which were used to finance the purchase as well as fees and expenses related to the disposal. The proceeds from this gain will be used for general working capital purposes and will have minimal impact on MAHB’s balance sheet. 

Our discounted cash flow valuation assumes a weighted average cost of capital of 7%. 

Potential rerating catalyst for MAHB in financial year 2015 include: better-than-expected passenger traffic;  SGIA breaking even; and better-than-expected contributions from the non-aeronautical division. — MIDF Research, March 25

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This article first appeared in The Edge Financial Daily, on March 26, 2015.

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