News
MMC announced that it is proposing to privatise Aliran Ihsan
Resources Berhad (“AIRB”) via a selective capital reduction exercise in the
company (“SCR”).
In the proposed SCR, AIRB will cancel 181.1m shares comprising
of 82.7m shares held by MMC and 98.4m shares held by minorities. MMC is
expected to waive its entitlement of RM82.7m (RM1.00 per share).
For the minorities, the SCR is valued at RM1.84 per share.
Comments
While it is a surprise to us, the SCR exercise is somewhat
within our earlier expectation of a non- cash acquisition.
Recall that we believe MMC is in cash-tight position as a
big portion of its cash is ring-fenced to its debts particularly in Malakoff.
The SCR valued the minorities shares at RM1.84 per share,
which imply 12.0x PER and 1.4x PBV. We think the valuation is fair as its
closest peer, Taliworks is currently trading at 14.0x PER. The 14% discount to Taliworks’
PER is justifiable as AIRB’s main earnings contributor – Equiventures
concession – has expired on 28th June 2012, which could limit its long term earnings
visibility.
AIRB is expected to make a cash payment of up to RM263.8m
(including MMC’s portion of RM82.7m) to complete the whole proposed SCR.
However, MMC will waive its entitlement. The proposed SCR is planned to be
completed by 1Q12.
Outlook
Recently, AIRB has secured a 3-year operating and maintenance
contract for Lembaga Air Perak (LAP)’s water treatment plant in Gunung
Semanggul, Perak.
Nonetheless, this privatisation has no material impact to
MMC’s earnings as this will only add another 3% earnings contribution to the group
at the PBT level.
Forecast No changes to our forecast.
Rating Maintain OUTPERFORM
We are maintaining our OUTPERFORM recommendation on MMC due
to 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.
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