Malaysia Airports Holdings Berhad (KLSE: MAHB) has suspended trading and will be delisted on the 25th of February.
Since 1999, MAHB has been a listed company, and after 25 years, it will be privatised by Gateway Development Alliance, a consortium led by Khazanah Nasional Berhad, the Employees Provident Fund, the Abu Dhabi Investment Authority and BlackRock’s Global Infrastructure Partners.
Given that airport management business controls the gateways to international travel, the parties involved would naturally raise eyebrows.
That said, the MAHB stock prices has rallied by more than 60+% in the past 1 year. And fundamentals wise, the latest fiscal year results show growth and promising prospects.
So, who wins and who loses with MAHB’s delisting? Let’s look at it from different angles.
The retail shareholders
Like all tourism stocks, the lockdowns and limited travel periods were a tough pill to swallow.
After 3 excruciating years, MAHB finally reported results that were in par with its pre-pandemic levels. In fact, share prices are now considerably at historical highs – higher than pre-COVID era. So it’s rather easy to assume that most investors, even the traders who bought the stock 1 month ago, would be sitting on some unrealised gains.
For those who have bought and held the shares for 16 years, it’s a 500% capital gain (excluding dividends), translating to 10% CAGR returns – not too shabby.
The GDA consortium
The Gateway Development Alliance (GDA) is a consortium of companies that is buying MAHB. It consists of Khazanah Nasional (Malaysia’s sovereign wealth fund), the Employees Provident Fund (EPF), Abu Dhabi Investment Authority (ADIA), and BlackRock’s Global Infrastructure Partners (GIP).
While some Malaysians might feel that having foreign entities co-own MAHB is a conflict to national sovereignty, the shareholding breakdown numbers are clear – 40% Khazanah, 30% EPF, 30% GIP Auerea.
GIP Aurea is the JV between BlackRock’s GIP (83.3%) and ADIA at 16.7%. That means BlackRock’s GIP effectively owns 25% of MAHB, which, while not a controlling stake, is still significant enough to impact major shareholder decisions.
Although there is no tangible proof, BlackRock’s lack of activist actions in the host of companies it invests in suggests that it tends to take a passive approach while sitting on the board of companies it invests in. However, the investments and support the company has for entities such as the Israeli Defense forces remains a sensitive issue in the Islamic world.
As for Khazanah and EPF, both have been major shareholders of MAHB for the longest time. With both funds effectively gaining 70% stake, and MAHB set to be delisted from the public markets, I guess there is lesser mark-to-market losses if share prices underperform.
And not to forget that EPF’s main goal is to help Malaysians grow their mandatory retirement funds, meaning that the public effectively owns MAHB through EPF as the proxy.
MAHB does fits the bill as a company that EPF would invests in. It generates decent free cash flow (FCF), and has a great FCF margin. That said, as the name implies, MAHB derives most of its operations from the airports in Malaysia that it owns, with the notable exception as the operator of Istanbul Sabiha Gocken International Airport.
The privatisation rationale (on paper)
The official reason to privatise MAHB is to grow and enhance Malaysian airports to the next level. MAHB was allegedly prioritising short-term profit demands to see its share price appreciate.
It also has a poor track record of undertaking expansion projects within projected time and cost.
My personal opinion? If MAHB could be better run and managed, the existing substantial shareholders already have the voting power to oust the current management and appoint someone with the credibility to run the company. It might not have required a delisting exercise.
On the flip side, we could be seeing a major upgrade project, that in the short to mid term, will see MAHB’s financials plummet down from its current levels. To prevent share prices from dipping in the event of a major capex project, it is plausible MAHB privatization aims to shield the company from potential valuation drawdowns that might have occurred had it remained listed.
Should that jive with the official reason, MAHB could emerge stronger post-privatisation with some real and serious up-hauling, KLIA in particular.
It needs to jive with tourism strategy as well
The tourism and hospitality business relies heavily on a well-planned strategy. For years, many countries have relied on what they have, be it natural or man-made attractions to draw visitors.
That leaves small countries like Singapore short-handed. Singapore comes in short when it comes to beaches and nature. But when the country secured exclusive rights to host Taylor Swift’s Eras concert, the ballgame of tourism changed. Experiences play a key role in enticing tourists, and it boils down to being the country that hosts such experiences to further allow tourism and hospitality businesses to ride the tailwind.
While other SEA countries have their unique offerings and experiences, I do not think any would come close to replicating the exclusive rights of hosting concerts like how Singapore does it.
Not that it will be a deal breaker, but if such moves are replicable, it would definitely help boost the prospects of MAHB and justify its long-term valuation.
Verdict
Being a frequent flyer between Singapore and Malaysia, I can easily vouch that Changi Airport operates on a different level. It’s not just a terminal for travellers to board or disembark their flights. It is the curtain raiser for what Singapore’s offerings, and the perfect send off after a wonderful time in Singapore.
The sheer amount of flights that this island nation has, to be the de facto SEA hub, means that other airports are going against Goliath to grow.
Perhaps better food, natural attractions, and strong value-for-money offerings continues to be the main reasons Malaysia continues to reel a large number of tourists.
However, MAHB’s growth depends on its ability to not only attract more tourists to Malaysia but also encourage spending at its airports.
Its still early to say who is the winner, but if the gameplay does unfolds well, Malaysians, together with the involved sovereign funds, could be the unlikely winners from MAHB’s privatisation today.
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