27 November 2012
Shares Continue To Fall – Analysts not too impressed with MAHB‘s reported bid for Stansted.
MALAYSIA Airports Holdings Bhd’s (MAHB) shares slid a day after it emerged that the airport operator may join the fray in making an estimated RM5 billion bid for the UK’s Stansted Airport, a move some aviation analysts are not too keen on.
The shares fell by 2.6 per cent, or 14 sen, to RM5.34 in its fifth consecutive day of decline. The broader FBM KLCI index eased 0.4 per cent in comparison, to 1,607.88.
Stansted is the fourth busiest airport in the UK and a hub for a number of major European low-cost carriers like Ryanair, which dominates 70 per cent of passenger traffic.
MAHB has so far declined comment on news reports of its supposed interest in Stansted.
An analyst from Maybank Investment Bank voiced concern that MAHB, which is currently focused on completing its new low-cost carrier terminal in Sepang, klia2, that is due to open by May 1 next year, would have too much on its plate if it joined the race for Stansted.
He pointed out that once klia2 is ready, MAHB would need to spend time ensuring smooth commencement of operations and solving any teething issue.
"klia2 is MAHB’s single largest investment to date and the management already has a lot to handle. So if they have another giant (Stansted Airport), which one are they going to focus on next year?" the analyst told Business Times.
The analyst also noted that MAHB’s strategy, based on past investments in overseas airports, is to venture into developing markets rather than developed ones like the UK.
"The management has mentioned before that this is their strategy. They can add value to the airline and new airports when they invest in emerging markets, whereas in mature markets, there is nothing much they can do," he remarked.
MAHB currently manages four airports abroad, including Delhi International Airport and Hyderabad International Airport in India, Sabiha Gokcen International Airport in Turkey and Ibrahim Nasir International Airport in Maldives.
At home, it operates 39 airports, including its flagship KLIA.
"We are slightly negative on the acquisition as any attempts by Stansted to cut costs will likely give rise to airline operators pressing for lower landing charges. With Ryanair being its key client, this does not give Stansted much bargaining power to maintain or lift airport charges," OSK Research said in a report yesterday.
Still, it noted that MAHB’s success in managing airports may boost its chances of winning the bid despite the valuation being on the high side.
The research house maintained its "buy" call and fair value of RM8 on MAHB as it is keen on the prospects of the group’s klia2 project.
UK news reports over the weekend claimed MAHB had made an approach for Stansted, joining four earlier bidders namely Manchester Airport Group (MAG), which is backed by Australia’s Industry Funds Management, and financial investors TPG, Macquarie and HRL Morrison.
The Sunday Telegraph’s sources indicated that while MAG had emerged as the favoured bidder in the earlier round of bids, Stansted’s owner wanted to secure a strong rival trade bidder to bolster the eventual price.
"This raises the possibility of MAHB ending up having to pay a higher price for the airport to secure its bid," OSK noted.
Stansted Airport is being forced-sold by owner Heathrow Ltd – previously known as BAA – after it lost a three-year battle with UK competition regulators that forbid ownership of two airports. Heathrow Ltd also owns Heathrow Airport.
Should MAHB win the bid, the group may have to raise its debt as its current cash pile is not sufficient to finance the UK STG1 billion acquisition.
"However, given its current net gearing of 54 per cent, there is some room for additional leverage should its funding needs grow. Other possible sources of funding that the group can tap on are its dividend reinvestment scheme, which could raise some RM190 million to RM200 million, assuming a 90 per cent take up," OSK said.
Stansted is thought to be inefficiently operated, OSK said, noting that due to its high airport charges, passenger traffic growth had declined from a peak of 23.8 million passengers in 2007 to an estimate of 17.1 million passengers this year.
"It is understood that the expenses incurred by the Stansted airport have been somewhat artificially inflated by the inclusion of expenses from other BAA-owned airports – Heathrow, Southampton, Glasgow and Aberdeen – in an attempt to justify higher landing charges," OSK said.
Stansted’s earnings before interest, tax, depreciation and amortisation is expected to hit STG87.3 million (RM428 million) and go up to STG201 million (RM985 million) in the next few years.