KUALA LUMPUR: CGS International Research has endorsed Hong Leong Investment Bank Bhd's (HLIB) recommendation for minority shareholders to accept the RM11 per share offer for Malaysia Airports Holdings Bhd (MAHB).
CGS International agrees with HLIB's assessment that the voluntary offer price by consortium Gateway Development Alliance Sdn Bhd is reasonable.
But the firm disagrees with HLIB's assessment that the price is not fair.
CGS International said HLIB's revised net asset value includes RM2.48 per share, representing the land valuation of off-terminal areas including the KLIA Aeropolis.
Excluding this, HLIB's valuation drops to between RM10.13 and RM11.23 per share.
Under normal trading conditions, it said, MAHB's share price has historically not reflected the land value of the Aeropolis due to the absence of material cash-accretive developments.
"As such, we believe it is unreasonable to expect the joint offerors to include the value of the Aeropolis land in their offer price."
HLIB's overall valuation also include MAHB's Malaysian airport assets, which range from RM8.97 to RM10.02 per share.
"HLIB did not specify whether it accounted for the Malaysian Aviation Commission's (Mavcom) proposal to cap airport returns on invested capital (ROICs) at the proposed weighted average cost of capital (WACC) rates under the Cost-Based Framework, effective from Jan 1, 2027.
"If HLIB did not consider this factor, we believe it may have overvalued MAHB's Malaysian airport operations," it added.
CGS International advised investors who bought MAHB shares with the intention of tendering them to the joint offerors at RM11 per share to remain calm.
The firm is confident that the offer will ultimately succeed.
Given the views of the independent directors, CGS International believes the most likely scenario is that the joint offerors will secure at least a 75 per cent stake but fall short of the 90 per cent threshold.
This may prompt a slight increase in the offer price to encourage the remaining minority shareholders to accept the offer.
The second most likely scenario, according to the firm, is that the joint offerors achieve at least a 90 per cent stake.
It noted that the third scenario is that the joint offerors secure close to a 75 per cent stake.
"We also expect a modest uplift in the offer price and for the joint offerors to say that they do not intend to address any shortfall in the 25 per cent public spread requirement, which is a condition for MAHB to remain listed.
"This could encourage the minorities to accept the offer if they do not want to hold unlisted shares in MAHB," it said.
CGS International also said the upside risk to its "Hold" call is for an uplift in the offer price in the first and third scenarios above.
It added that the downside risk is a fourth scenario whereby minorities wholeheartedly reject the offer, leading to the joint offerors abandoning their effort to privatise MAHB.
This could cause the share price to correct significantly.