News
MMC had requested a trading suspension on Bursa Malaysia
starting from today pending a material announcement.
In a separate announcement, MMC said it had notified its
62.82% owned subsidiary, Aliran Ihsan Resources Bhd (“AIRB”) that it is
considering the privatisation of the company.
Comments
We are pleasantly surprised by this news as we do not expect
any privatisation within the group at this juncture. The privatisation will
allow MMC to ride on AIRB’s steady earnings and cash flow from its water business.
To recap, AIRB is a water-treatment operator which operates
mainly in Johor. It is currently operating about 16 water treatment plants
(WTP) across Johor, making up about 70% of Johor’s water supply. In August 2011,
AIRB was awarded the 3-year O&M contract of the Gunung Semanggol water
treatment plant from Lembaga Air Perak. The project will contribute about RM11m
revenue per annum to AIRB.
Based on AIRB’s last closing share price of RM1.75, MMC will
have to fork up about RM172.2m, which also implies a 1.3x PBV, to acquire the
remaining 38% shares in AIRB. As at 3Q12 results, MMC is in a net gearing
position of RM14.5b and its cash balances stood at RM7.5b. We do not discount
the possibility of non-cash acquisition (i.e. share swap) as most of MMC’s cash
is ring-fenced to its debts.
Outlook
AIRB’s additional earnings contribution to MMC will be about
3% (from the current 7%) at the pre-tax level. Going forward, we reckon that
AIRB will provide a stable earnings and also cash flow to MMC from its ongoing
water business.
Meanwhile, on another matter, we expect MMC to announce in
the near term the findings of its feasibility study on its plan to acquire
KTMB. Based on recent news flows, MMC is unlikely to absorb KTMB’s hefty debt could
be seeking a privatisation/concession of KTMB.
Forecast No changes to our forecast.
Rating Maintain OUTPERFORM
We are maintaining our OUTPERFORM recommendation on MMC due
to the share price ample upside to our target price and its interesting corporate
developments in the near term.
Valuation No change in our Target Price of
RM3.11, which is based on SOP valuation.
Risks Delays in MRT construction works.
Source: Kenanga
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