MAHB shareholders can aim higher

IN just four days, shareholders of Malaysia Airports Holdings Bhd (MAHB) will have to decide whether to accept or reject a deal to take the airport operator private.

Until recently, it had seemed like a done deal given the offerors’ insistence that the offer price was “compelling” and adamant on not upping it.

However, the recent dissent from MAHB independent directors might have just thrown a spanner in the works before this coming Wednesday’s decision.

In a rare move, the independent directors voiced their objections, not so much on the proposed privatisation move but the “low” price being offered to shareholders.

In fact, all five independent directors told shareholders in a lengthy circular to reject the offer on grounds that the offer was neither fair nor reasonable.

The five independent directors – Mohamad Husin, Ramanathan Sathiamutty, Cheryl Khor Hui Peng, Koe Peng Kang and Chris Chia Woon Liat – have strong valid points.

They believe the company is worth much more given its good growth potential and positive financial momentum and there is potential value accretion if MAHB remains publicly traded.

They say the RM11 per share represents a discount of RM1.61 and RM2.71 – or about 12.77% to 19.77% – when set against Hong Leong Investment Bank’s (HLIB) estimated value per MAHB share of between RM12.61 and RM13.71.

HLIB, which is the independent adviser, has recommended to shareholders to accept the offer, which it said was reasonable due to MAHB’s prolonged suppressed share price.

The adviser, however, deemed the offer unfair based on MAHB’s estimated fair valuation of between RM12.61 and RM13.71 per share.

In order to obtain another unbiased opinion, the independent directors appointed global financial adviser UBS AG Singapore (UBS) to assess the value of MAHB shares.

UBS just strengthened their argument – it, too, feels the offer price is unfair.

To recap, Khazanah Nasional Bhd, together with the Employees Provident Fund (EPF) and GIP Aurea Pte Ltd, formed a consortium called Gateway Development Alliance Sdn Bhd (GDA) and made an offer to take MAHB private at RM11 each.

The offer is conditional upon 90% acceptance and the first cut-off date for shareholders to accept is Jan 8, 2025.

Khazanah will raise its stake in MAHB to 40% from 33.2% and EPF from 7.9% to 30% upon completion of the transaction.

Essentially, Malaysian investors would own 70% of MAHB, while Abu Dhabi Investment Authority and GIP would hold the remaining 30%.

The objections from the independent directors prompted GDA to issue a statement pointing out that the directors “fail to take into consideration MAHB’s past performance and challenges it faces” when assessing the offer.

GDA said the prospects underlined in the rejection “are optimistic and unlikely to materialise without significant additional capital investment and an infusion of technical know-how”.

But unlike the beleaguered national carrier Malaysia Airlines, which had to deal with air disasters and intense competition, MAHB operates in a monopolistic industry where it controls 39 airports in Malaysia. As tourism numbers pick up, so will its revenue.

Improving operational, financial performance

Take for example its recent third quarter results.

Its net profit more than doubled in its third quarter ended Sept 30, 2024 (3Q24) from a year earlier, thanks to higher passenger volumes.

Net profit for 3Q24 jumped to RM210.37mil from RM94.76mil a year ago while revenue rose 20% to RM1.53bil from RM1.28bil.

It saw higher passenger numbers resulting from new airline operations, additional flight frequencies and the implementation of a 30-day visa-free policy for Chinese and Indian travellers to Malaysia.

Meanwhile, revenue from its airport operations increased 20.7% year-on-year to RM1.44bil, with the aeronautical segment’s revenue increasing by 27% to RM891.5mil.

Total passenger numbers for MAHB reached 36.2 million in 3Q24 from 32.7 million a year ago.

As for its non-aeronautical segment, revenue rose to RM552.4mil in 3Q24 from RM494.5mil a year earlier due to improved contribution of commercial revenue from Malaysia and Turkiye operations.

For the nine months just ended, its net profit more than doubled to RM606.16mil from RM255.47mil on the back of a 20.3% jump in revenue to RM4.26bil from RM3.54bil.

For the remainder of financial year 2024, MAHB anticipates continued growth, with passenger traffic expected to near pre-pandemic levels, particularly from key markets such as China, India and South-East Asia.

MAHB said its prospects for coming years appear promising, driven by a robust recovery trajectory, strategic initiatives to boost passenger numbers, and positive industry forecasts.

In addition, there is the untapped potential in the Subang Airport regeneration project and expansion of the Penang and Kota Kinabalu airports.

Essentially, there are many reasons why minority shareholders of MAHB should hold out for more, given the intrinsic value of the airport operator.

Rejecting the offer could be profitable given MAHB’s promising growth, but it entails the risk of the deal falling through.

For the joint offerors, achieving the 90% acceptance threshold might become more challenging due to the directors’ strong dissent.

Revising the price upwards might just do the trick.