Sunday, August 10, 2008

Senai Airport deal bodes well for MMC in long term

The airport can enhance portfolio through synergy

ALTHOUGH MMC Corp Bhd's proposed acquisition of Senai Airport Terminal Services Sdn Bhd (SATS) for RM1.95bil is considered expensive, the loss-making airport may promise better long-term prospects for the group.

The takeover by MMC will involve the issuance of 696.43 million new shares at RM2.80 each.

KAF-Seagroatt & Campbell Securities Sdn Bhd was sceptical of the deal due to SATS' loss-making position and massive dilution of earnings per share (EPS) via the issuance of new shares.

“For the financial year ended June 30, 2008, SATS recorded RM25mil in net losses with net tangible asset (NTA) of RM295mil.

“Hence, the RM1.95bil acquisition represents 6.6 times of the NTA. The new shares to be issued for the SATS acquisition represent 22.9% of MMC’s existing share capital.

“The overall EPS dilution will be greater than the share capital of MMC,” said the research house in its latest report.

While the short-term prospects of the investment may be bleak, in view of MMC's strong foothold in the port and logistics business in Johor, SATS can enhance the group's portfolio in terms of synergistic cooperation.

SATS manages, maintains, develops and provides airport and aviation-related services at Sultan Ismail Airport in Senai. It became the country's first independent airport operator when it landed a 50-year concession from Malaysia Airports Holdings Bhd in 2003.

MMC, meanwhile, also owns Port of Tanjung Pelepas (PTP) in southwest Johor and Johor Port in Pasir Gudang.

PTP focuses on container business mainly for transhipment operations while Johor Port is a multipurpose port, which mostly handles import and export goods.

Under Johor Port, MMC is also involved in the logistics business via JP Logistics Sdn Bhd.

With the addition of SATS, MMC will emerge as the biggest all-round transport player in Johor.

Furthermore, SATS will be poised to take advantage of the development in Iskandar Malaysia.

The reported owner of SATS, Tan Sri Syed Mokhtar Albukhary, who also controls MMC Corp Bhd, might have foreseen that the expansion of SATS under a listed entity could be faster in line with the development of its surrounding industries.

SATS recently announced its plan to develop an 800ha high-tech park as a major logistics hub and township within five years.

The park, paired with a new shopping mall and a new interchange to the airport terminal, is expected to boost SATS' status as a centre for commerce and retail industry.

SATS, via wholly owned subsidiary Enigma Harmoni Sdn Bhd, owns 2,178 acres, designated for the development of Senai Airport City.

Once the infrastructure is ready, the Senai airport, which handled 1.6 millions of passengers last year, can be a cheaper alternative for Changi International Airport users.

MMC has proven to be successful in similar scenario previously, via PTP, which has attracted the biggest container line, Maersk to shift its operation to PTP from Port of Singapore.

click here: Senai Airport deal bodes well for MMC in long term