Turbulence in MAHB sale

THE privatisation of Malaysia Airports Holdings Bhd (MAHB) had seemed a foregone conclusion for many in corporate Malaysia ‑ until a gripping twist in the tale late last week.

Non-independent directors of the group called on shareholders to reject the share purchase offer by Gateway Development Alliance (GDA). It’s a suggestion that flies in the face of the recommendation by independent valuer Hong Leong Investment Bank Bhd (HLIB).

HLIB had itself labelled GDA’s offer as “unfair” but “reasonable”, the seemingly curious conclusion coming because it finds the deal to have undervalued MAHB’s share price, while deeming it reasonable in the absence of other offers.

The central theme has always been whether the RM11 per share offer price by GDA does justice to shareholders, particularly considering how air traffic has returned to pre-lockdown levels and MAHB has posted much improved year-to-date (YTD) results in 2024.

GDA is a consortium led by two Malaysian entities - UEM Group Bhd (UEM Group), a wholly owned subsidiary of Khazanah Nasional Bhd, and the Employees Provident Fund (EPF).

The consortium’s shareholders also comprise a wholly owned subsidiary of the Abu Dhabi Investment Authority (ADIA) and funds managed by Global Infrastructure Partners (GIP), one of the world’s premier infrastructure investors as well as renowned airport owner and manager.

HLIB’s own sum-of-parts valuation of MAHB had revealed that the offer represented a 12.77% to 19.77% discount to the estimated value of between RM12.61 and RM13.71 per share.

The consortium formally launched a conditional voluntary offer to take MAHB private at RM11 per share on Nov 15, following the successful fulfilment of all four regulatory approvals outlined in the pre-conditions.

A week earlier, the Malaysian Aviation Commission (Mavcom) had approved the proposed transaction.

For context, MAHB posted strong results for the third quarter ended Sept 30, with both quarterly and year-to-date net profit more than doubling year-on-year to RM210.4mil and RM606.2mil, respectively, thanks largely to passenger traffic returning to normal.

The non-interested directors of MAHB who suggested that shareholders reject the deal are Datuk Mohamad bin Husin, Ramanathan Sathiamutty, Cheryl Khor Hui Peng, Datuk Seri Koe Peng Kang and Chris Chia Woon Liat.

The four listed a number of reasons for their recommendation, including the belief that MAHB has already embarked on plans to ensure that it continues capitalising on anticipated traffic growth, the strengthening economy and improved confidence in travelling.

Furthermore, they said, post-lockdowns, the airport manager had doubled down on two pivotal drivers to speed up the recovery of the group.

These are expanding its hub connectivity and increasing the number of airlines flying into Kuala Lumpur International Airport (KLIA) and other points in Malaysia, as well as highlighting MAHB’s commercial reset and rejuvenation programme that had begun showing positive results since its implementation in 2020.

Ramanathan is also of the view that the priority initiatives in GDA’s offer document are similar to the existing MAHB management strategy, with no stated intentions on how the transformation of all airports will happen.

Additionally, he said MAHB was an asset-heavy group that operates under a cross-subsidy model where profitable airports fund the development of smaller airports.

“There is no stated intention on whether this model will be sustained (if the group is privatised).

“MAHB is not just a publicly listed company providing value to shareholders, it is also a company that ensures national connectivity to drive national unity and integration,” he pointed out.

While also emphasising MAHB’s recent positive results, Ramanathan observes that it has a clear strategy to build on its growth momentum.

He says the company’s delisting will also reduce its ability to raise additional equity from the capital markets.

Notably, GDA and its related companies at present hold a collective 41.1% in MAHB.

In November, analysts and fund managers had been advocating for MAHB’s shareholders to accept the deal, with RHB Research mentioning that the offer exceeded its valuation of the aviation group, while CIMB Research said the deal was an opportunity to realise immediate gains and mitigate the risks tied to MAHB’s capital-intensive expansion plans.

Head of equity sales at Rakuten Trade Vincent Lau believes the offer price is fair and is higher than the historical share price of MAHB since its listing in 1999.

“The outlook for MAHB is certainly bright, with the rebound of the tourism sector globally. There is also concerted effort from airline players such as Capital A and its associate AirAsia in rejuvenating their companies,” he tells StarBiz 7.

On the question of whether the MAHB share price could surpass the offer price of RM11, Lau felt the publicity surrounding the takeover has played a part in pushing the group’s share price to its current level of around RM10.60.

While MAHB’s share price has been on an uptrend since the start of year, it spiked to breach the RM9 barrier on March 14, and hit RM9.40 the day after, after news broke that Khazanah could be forming a consortium to take MAHB private.

“Of course, there could be shareholders who may hope that the share price may rise beyond the offer price, but we believe this is unlikely to happen,” he says.

Likewise, Nixon Wong, chief investment officer at Tradeview Capital, views the offer as reasonable, observing that strong local passenger traffic throughout the year had driven the group’s results thus far, offsetting the potential risk due to geopolitical tensions affecting its Sabiha Gökçen International Airport in Istanbul.

Addressing the issue of whether MAHB could be more efficient, he acknowledges that MAHB’s earnings may continue to see growth organically even without being taken private.

“However, we believe that privatisation will allow the group to better manage operational efficiency over the longer run with the expertise of GIP in airport management.

“This could be in the form of infrastructure improvements, enhancing passenger experiences, attracting new airlines, ensuring safety, upgrading service standards, and expanding airport capacity, with less scrutiny from public shareholders on near‑term potential cost and increasing capital expenditure (capex) that may put pressure on earnings,” he says.

More importantly, Wong does not see significant upside to the stock’s price beyond the offer of RM11, as he feels that the risk of more cost and capex spending required to improve operational efficiency may cap earnings.

Certain sources claimed to have arrived at a price that is significantly higher than what is being offered, using the discounted cash flow (DCF) method of calculation to ascertain the value of MAHB.

However, RHB Research analyst Syahril Hanafiah in his own DCF valuation estimates that the fair value for MAHB’s shares stands at RM9.70.

He tells StarBiz 7: “This is why our official target price is RM11, and it is to match the offer price, which is higher than RM9.70 we arrived at from the DCF valuation.”

CIMB Research reported that the consortium believes that in privatising MAHB, significant operational efficiencies and economic benefits will be unlocked, especially with GIP’s extensive expertise in airport management.

“The consortium aims to enhance Malaysia’s global air connectivity, modernise MAHB’s operations, and maximise the potential of its airport network, including Sabiha Gökçen International Airport.

Moreover, the research house explained that the offer is conditional on receiving at least 90% MAHB shareholder acceptance before the closing date, with the joint offerors at present collectively holding a 41.2% stake in MAHB, and requiring at least 48.8% acceptance from the remaining shareholders for the offer to proceed.

If the takeover is successful, it says the Malaysian members of the consortium will collectively own 70% of MAHB, with Khazanah and the EPF holding 40% and 30% stakes, respectively, while GIP and ADIA will hold the remaining 30%.