Target RM9.50 (Long Term: Out Perform)
News
reports have hinted that MAHB is keen to buy another 40% in Sabiha
Gokcen (SAW) by end-2013, which if true will likely lead to an
equity-raising exercise to keep MAHB's gearing in check. Our base case
suggests target price dilution of 10% and a 19% rise in share base.
We
maintain Outperform and keep unchanged our DCF-based target price (WACC
6.9%). Share price catalysts may include a higher-thanexpected PSC hike
in 2014, the concession extension, the granting of new tax allowances,
and the possible on-time opening of KLIA2. Even if the SAW purchase goes
ahead, we see minimal target price dilution, with our base case target
dropping only slightly to RM9.45.
Raising new equity?
News reports suggest that GMR, MAHB's partner in SAW, is looking to divest its 40% stake in the Turkish airport by end-2013, and that MAHB is interested to buy given the airport's bright prospects, thus lifting the latter's stake to 60%. We suspect that new equity will need to be raised to fund the buy because consolidating the airport's hefty debt onto MAHB's balance sheet will put the latter in danger of breaching its debt covenant. Our base case calculations suggest an immediate EPS dilution of at least 19% if the S&P and equity-raising exercise take place, but a mere 0.5% drop in our SOP valuation to RM9.45 after incorporating cash proceeds from the exercise and the value of the potential 60% stake in SAW.
Briefing takeaways - the positives...
A potentially higher-than-expected 10-11% increase in passenger service charge (PSC) come February 2014 will be positive for earnings as we have only imputed a 9% rise in our model. MAHB may also likely receive its KLIA concession extension in 1Q14, which will allow the company to depreciate KLIA2-related capex over 55 years. Photos taken by MAHB suggest that KLIA2 is well on its way to completion but MAHB did not give any guarantees. Should KLIA2 open on time, MAHB will benefit via higher retail and rental revenue.
... and the negative
The Inland Revenue Board is restricting the application of investment tax allowances (ITA) arising from MAHB's KLIA2 capex to KLIA2's profits only. MAHB was previously hopeful of being able to apply the ITA to KLIA's (MTB and KLIA2) entire earnings. Tax benefits from the ITA will hence accrue to MAHB over a longer time horizon.
Raising new equity?
News reports suggest that GMR, MAHB's partner in SAW, is looking to divest its 40% stake in the Turkish airport by end-2013, and that MAHB is interested to buy given the airport's bright prospects, thus lifting the latter's stake to 60%. We suspect that new equity will need to be raised to fund the buy because consolidating the airport's hefty debt onto MAHB's balance sheet will put the latter in danger of breaching its debt covenant. Our base case calculations suggest an immediate EPS dilution of at least 19% if the S&P and equity-raising exercise take place, but a mere 0.5% drop in our SOP valuation to RM9.45 after incorporating cash proceeds from the exercise and the value of the potential 60% stake in SAW.
Briefing takeaways - the positives...
A potentially higher-than-expected 10-11% increase in passenger service charge (PSC) come February 2014 will be positive for earnings as we have only imputed a 9% rise in our model. MAHB may also likely receive its KLIA concession extension in 1Q14, which will allow the company to depreciate KLIA2-related capex over 55 years. Photos taken by MAHB suggest that KLIA2 is well on its way to completion but MAHB did not give any guarantees. Should KLIA2 open on time, MAHB will benefit via higher retail and rental revenue.
... and the negative
The Inland Revenue Board is restricting the application of investment tax allowances (ITA) arising from MAHB's KLIA2 capex to KLIA2's profits only. MAHB was previously hopeful of being able to apply the ITA to KLIA's (MTB and KLIA2) entire earnings. Tax benefits from the ITA will hence accrue to MAHB over a longer time horizon.
Source: CIMB Research, Full PDF Report
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