KUALA LUMPUR, 20 DECEMBER 2024 – Gateway Development Alliance Sdn Bhd (“GDA”) and its shareholders (collectively, the “Consortium”) notes the Independent Advice Circular (“IAC”) issued on 20 December 2024 by Malaysia Airports Holdings Berhad (“MAHB”) regarding GDA’s conditional voluntary take-over offer for MAHB (the “Offer”). The IAC contains the Independent Advice Letter as prepared by Hong Leong Investment Bank Berhad (“HLIB” or the “Independent Adviser”) and an accompanying letter from MAHB’s Board of Directors incorporating the views and recommendations of MAHB’s Directors who are not deemed to have an interest in the Offer (“Non-Interested Directors”).

The Consortium notes that the Independent Adviser has recommended that shareholders Accept the Offer. The Consortium further notes the Non-Interested Directors’ recommendation on the Offer which disagreed with the view of the Independent Adviser and fails to take into consideration MAHB’s past performance and the challenges it faces.

While MAHB’s most recent performance indicates positive momentum, the Consortium is of the view that the prospects represented by the Non-Interested Directors are optimistic and unlikely to materialise without significant additional capital investment and an infusion of technical know-how. MAHB’s prolonged underperformance both operationally and financially relative to peers suggests execution of its plans will remain a challenge. MAHB does not have a credible track record of delivery on its promises. As an example, MAHB had highlighted in its Annual Report that it was working on an Aerotrain replacement as far back as 2017 after several service failures. However, the contract for the project was only awarded in December 2021 and the service has been fully suspended since March 2023. Despite ongoing assurances of its pending restart, delays continue to persist.

 

Prolonged underinvestment has led to ageing and unreliable assets

MAHB’s network of airports has suffered from underinvestment, both in maintaining the core assets and systems as well as in new projects to expand capacity.  Over the last five years, MAHB has spent just RM1.3bn in comparison to Changi Airport’s RM18.9 billion, RM8.1 billion by Indonesia’s Angkasapura I and II and RM6.8 billion by Airports of Thailand. 

This underinvestment has resulted in an ageing asset base which has led to high profile operational failures in recent years.  MAHB’s airports are in urgent need of significant remediation spend as well as new capital to fund much-needed expansion. As outlined in the Offer Document, the Consortium is committed to position MAHB for long-term sustainable growth by focusing on the maintenance and upgrade of airport infrastructure, enhancing passenger service levels and improving airline connectivity. 

 

MAHB has been losing market share 

MAHB has lost significant ground in the ASEAN aviation market with market share falling from 20% to 16%1 Based upon KLIA’s share of traffic across KLIA, BKK, DMK, SIN, MNL, SGN and HAN between 2013 and 2023. over the period 2013 to 2023. Noting the significant investments in new capacity being made by competing airports such as Changi in Singapore and Suvarnabhumi in Bangkok, MAHB is at risk of continuing to lose market share without a long-term capital investment and planning horizon which can only be achieved in a private environment.

 

Underwhelming shareholder returns

The operating and financial underperformance by MAHB has been reflected in its share price performance and distributions to shareholders:

• Over the 10 years from 31 December 2013 to 31 December 2023, MAHB’s market capitalisation grew by 12.2% whilst APAC Peers2 APAC Peers include Airports of Thailand, Shanghai International Airport, Auckland International Airport, Japan Airport Terminal, Guangzhou Baiyun International Airport, Beijing Capital International Airport, Shenzhen Airport, Hainan Meilan International Airport and Xiamen International Airport. Market capitalisation data is weighted by their respective market capitalisation (in Ringgit terms) at the end of the preceding year. grew by 216.8% (18x of MAHB’s growth).
• Dividend yields have been low, with MAHB currently offering a 1% yield (per the Offer Price) compared to the DJ Airports Index at 3.0%3 Refers to Dow Jones Brookfield Airports Infrastructure Index as calculated as at the end of November 2024. (3x of MAHB’s yield).

 

Compelling offer

The Consortium’s view remains firm that the offer price of RM11.00 is a highly attractive offer to MAHB shareholders given it:

• Represents a premium of 49.5% year-to-date (“YTD”) relative to MAHB’s closing share price on 29 December 2023 of RM7.36. This compares to the 10.0% YTD performance4 Up to and including 14 November 2024, being the last trading day prior to the date of the notice for the Offer. of the benchmark index FTSE Bursa Malaysia KLCI (offer price premium is 5x FTSE Bursa Malaysia KLCI’s performance);
• Represents an EV/Adjusted EBITDA multiple of 13.9x and price-to-earnings ratio of 37.7x, based on MAHB’s latest audited consolidated financial statements;
• Is higher than any price MAHB has ever traded at; and
• Is viewed favourably by all 14 licensed equity research analysts that currently cover MAHB (which excludes HLIB and UBS), who each have target price that is either lower than or equal to RM11.00, and most of whom also explicitly recommend that shareholders accept the Offer. 

We also note that the Independent Adviser’s assessment of reasonableness of the Offer reflects our justification above, particularly on the analysis of MAHB’s historical market share price performance. 

 

Conclusion

MAHB’s importance as a strategic Malaysian asset is reflected by an increase in the combined ownership in the company by UEM Group Berhad (a wholly-owned subsidiary of Khazanah Nasional Berhad) and Employees Provident Fund Board from the current 41.1% to a target 70%, while the Government continues to retain its golden share. The Consortium looks forward to working closely with the aspiring talent at MAHB and is committed to restoring its competitive edge – by ensuring talent is properly rewarded in alignment with their contributions and achievements.

With its combined resources, control of the board and without the constraints of a public market listing, the Consortium will be able to expedite necessary capital investments and provide the requisite technical expertise to realise MAHB’s potential, to the benefit of all stakeholders.

We wish to remind MAHB shareholders that the first closing date for the Offer is 8 January 2025.

 

Issued on behalf of the Consortium by
EPF Editorial and Media Relations Unit
Corporate Affairs Department
20 December 2024

 

Disclaimer: This news article is published in English. For further assistance, please contact the EPF Editorial and Media Relations Unit.