Multi-Purpose Holdings - Multiple push factors, poised to rerate

We see three key catalysts in MPHB at this juncture, which is likely to rerate the stock further. First, the stock is cheap (unjustifiably so). Secondly, it is transforming  into a clean-cut NFO play (which should lead to a higher valuation). And thirdly, there could be a special dividend to reward investors. MPHB is now in the middle of an asset rationalisation exercise to dispose off non-gaming assets. The proceeds should be enough to raise its already attractive dividend payout as well as a one-off special dividend payment of 56 sen. More importantly, with the disposal, it will become a pure NFO play, which will force the market to push its valuation probably up to par with current favourite BToto’s valuation (23% discount right now). In addition, at its current price of RM2.88, one is actually buying the stock  for almost free the worth of its non-gaming assets of RM1.77. Hence, the stock is clearly undervalued at this stage. We are thus initiating coverage on MPHB with an OUTPERFORM conviction and TP of RM3.72/share, a 10% discount to its RNAV. 

A gaming-centric conglomerate. Through its subsidiaries, Multi-Purpose Holdings Bhd (MPHB) is involved in the Gaming, Stockbroking, Financial Services, Hospitality and Property divisions. About 75% of MPHB’s earnings are derived from its NFO business with the Insurance unit being the second largest earnings contributor (c.12%).  Its Hospitality and property division contributes c.10% to the group with Stockbroking being the smallest unit.

Undemanding valuation.  MPHB is trading at 11.2x CY12 PER, a 23% discount to another listed NFO player,  Berjaya Sports Toto Bhd (“BToto”, MP; TP: RM4.52). This we believe has been mainly due to MPHB being an investment company, which typically commands lower valuation compared to a single-purpose business entity. Even so, at its current price of RM2.88, one is buying the stock for almost free the worth of its non-gaming assets of RM1.77. 

Asset rationalisation exercise to unlock value. Since Dec 2011, MPHB has completed the disposals of Menara MPHB and Flamingo Downtown in Pudu. Management has indicated its intention to sell all its non-gaming assets to focus just on the NFO business. This is part of the exercise to unlock the group’s value as the stock is  always  trading  at  discount  to  its peers. Hence, this rationalisation exercise should help to re-rate the stock.  

Special dividend on the card? Apart from the rerating catalyst, MPHB is expected to raise funds from the disposal exercise. We have estimated that its non-gaming assets are worth c.RM1.44b, based on NBV. If MPHB were to use the proceeds to redeem all its outstanding debts, the group will become a net cash company. With a net cash of RM805m, MPHB would be able to distribute 56 sen as a special dividend to reward shareholders, in addition to its already attractive regular gross dividend yield of 6%-7%. 

14% CAGR over 2011-2014. We expect core earnings to grow at 14% 3-year CAGR over the next three years, mainly led by its NFO business under 100%-owned Magnum Corp Sdn Bhd. Our earnings model still includes contributions from the non-gaming businesses at this juncture, although as mentioned, their disposals are likely to result in a better valuation for the stock. 

OUTPERFORM with TP of RM3.72/share.  The asset rationalisation exercise  is  the  key  to  unlocking  MPHB’s  value.  We  believe  it  is  a  good  time to buy MPHB now at its undemanding valuation before it gets rerated by the after the completion of the rationalisation exercise. We are hence initiating coverage  on  MPHB  with  a  OUTPERFORM  rating  and  price  target  of RM3.72/share (being at a 10% holding company discount to the RNAV).

Source: Kenanga