MAHB waning, GDA can rejuvenate, but shareholders must accept RM11 a share

Malaysia Airports Holdings Bhd (MAHB) was once, one of Asean's top airport owners and operators.

However, the company led by its crown jewel the Kuala Lumpur International Airport has been losing market share over the years falling to 16 percent in 2023 from 20 percent in 2013.

Amid the downturn, a consortium called Gateway Development Alliance Sdn Bhd has emerged sharing many great plans to turn around the company in the future.

However, to implement these plants smoothly, it is best that the listed MAHB be taken private.

By doing so, GDA will have a free hand to steer MAHB to greater heights and not be bogged down by bureaucratic red tape required of a listed company such as getting shareholders approvals at annual and extraordinary general meetings.

The takeover bid for MAHB by GDA comprise the Employees Provident Fund, Khazanah Nasional, BlackRock's Global Infrastructure Partners and Abu Dhabi Investment Authority.

"MAHB is at risk of continuing to lose market share without a long-term capital investment which can only be achieved in a private environment," GDA said in a statement.

Offer to shareholders reasonable

The offer by GDA to buy shares it does not own in MAHB was deemed last week as viable for shareholders by the deal's financial adviser Hong Leong Investment Bank or HLIB.

"HLIB is of the view that the offer is 'not fair' but 'reasonable'," according to deal adviser said HLIB.

The US$4.08 billion offer made by the consortium in May sought to upgrade infrastructure and improve connectivity and services, goals that would be better realised through privatisation.

In its recommendation HLIB maintained the offer undervalued the company but said it gave shareholders a chance to exit their investments in MAHB in the absence of an alternate offer.

MAHB a pale shadow of its former glory

At its height, MAHB's KLIA was the talk of the region.

But now, significant investments in new capacity are 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:

Between 2013 and 2023, MAHB’s market capitalisation grew by 12.2 percent while Asia Pacific peers grew by 216.8 percent (18 times of MAHB’s growth).

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 percent year-to-date relative to MAHB’s closing share price of RM7.36 in December 2023.

GDA said the RM11 is the highest than any price MAHB shares have 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.

Countering MAHB directors

While MAHB directors disagreed with the view of HLIB, they fail 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 directors are 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," said GDA.

Aerotrain woes

GDA said MAHB also 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.

Aging assets

Prolonged underinvestment has led to aging 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 RM1.3 billion 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. 

GDA turnaround plan

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.

Meanwhile, in the Independent Advice Circular, the consortium said airports are critical infrastructure and enablers of economic activity through the flow of passengers and cargo. Here are its turnaround plans for MAHB.

Improving MAHB's connectivity

Malaysia is strategically located in the rapidly growing South East Asian aviation market and has the potential to play an important role in long haul, global, air connectivity.

"Malaysia’s network of capital city and regional airports has the potential to develop a broad base of origin and destination traffic, transit traffic, and freight.

"Presently, Malaysia’s long haul air connectivity underperforms regional peers, adversely impacting Malaysia’s ability to attract leisure and business travel, and foreign investment. 

The consortium believe that improved connectivity will stimulate traffic growth with the resultant economic benefits.

Providing high quality services to passengers

MAHB manages 39 airports across Malaysia consisting five international airports, 17 domestic airports and 17 STOLports) and one international airport in Istanbul, Türkiye. 

MAHB’s airports are key gateways to Malaysia and Turkiye, and it is crucial to MAHB that its international airports demonstrate high and consistent service standards and provide an excellent passenger experience, leaving a positive and enduring impression on travellers.

 With their combined capabilities, the consortium is confident that they can deliver their objectives to upgrade and modernise MAHB’s operations, enhance passenger service, improve airline connectivity, and stimulate traffic growth. 

All of these will help unlock the potential of Malaysia’s airport network and drive the continued development of Istanbul Sabiha.

Objectives best achieved when MAHB taken private

The consortium believes that these objectives will be best achieved by MAHB as a private entity, taking a long-term approach to decision making and capital investment, and benefitting from Blackrock's GIP airport expertise.

The consortium has identified several priority initiatives. The consortium aims to complete high priority capital and maintenance projects.

They will place immediate focus on evaluating key capital expenditure projects and resolving delays, including the aerotrain and the baggage handling systems at Kuala Lumpur International Airport.

a. Enhancing the passenger experience

The consortium also plans to alleviate congestion, improve passenger flows and terminal ambience at MAHB’s airports, and expand the retail and food and beverage offering.

b. Working with existing and attracting new airlines

A key focus area the consortium will be expanding the long-haul network at KLIA, as well as improving overall connectivity at MAHB’s state airports.

c. Maintaining the highest level of safety for passengers and employees

The wellbeing and safety of MAHB’s staff and travellers will, at all times, be of the highest priority.

d. Accelerating capital investment

The consortium intends to allocate funding to repair and maintain existing infrastructure and equipment.

e. Upgrading and harmonising service levels

The consortium is committed to implementing minimum operational best practices across MAHB’s network of airports.

f. Planning investment to grow airport capacity

The consortium plan to invest in MAHB’s network of airports in Malaysia and Türkiye with the benefit of long-term decision-making and GIP’s expertise in expanding and optimising airport capacity.

g. Driving economic stimulus 

The consortium said this done by partnering with state bodies and local businesses to expand activity around MAHB’s airports, leveraging growth in passenger and freight flows.

The successful implementation of the above initiatives will be subject to market and business conditions and, to the extent required, the approval of the Minister of Finance (incorporated in its capacity as the special shareholder of MAHB as well as the Government of Malaysia.

Shareholders of MAHB must think wisely and accept this offer

As HLIB puts it, this is not the best offer but it is a reasonable offer and the only existing offer considering MAHB shares have never gone beyond RM11 and the company has been spiralling downwards since 2013.

Shareholders must decide before January 8 next year and decide expeditiously. - DagangNews.com