The share price of MPHB has risen 6% in the past three days
and a re-rating is on the cards as it has ironed out the details of its demerger
exercise yesterday. The SPV, MPHB Capital is paying RM905.4m to MPHB (and
assuming RM77.6m debts as well) for the non-gaming assets, except for the
stockbroking business, at net assets value. Post de-merger, shareholders of
MPHB will be offered a 1-for-2 Offer for Sale of all the SPV shares and a c.RM0.48/share
capital repayment. In all, the enterprise value of MPHB will not change before
and after the exercise. However, we expect a re-rating on MPHB valuation as the
holding company discount applies to its RNAV will be removed as it becomes a
pure NFO play. As such, we are upgrading our TP of MPHB to RM4.31/share from
RM3.88/share after removing the 10% holding company discount to its RNAV.
OUTPERFORM maintained.
Details of demerger
exercise set. Yesterday, Multi-Purpose Holdings Bhd (MPHB) announced the
details of 1) the proposed demerge exercise; 2) proposed capital repayment; and
3) the listing of its non-gaming assets. Under the proposals, a SPV, namely
MPHB Capital Bhd (SPV) has been set up to acquire MPHB’s non-gaming assets
except the stockbroking entity for a total consideration of RM905.4m with
RM77.6m debts. The whole exercise is expected to be completed in 1H13.
Non-gaming assets
valued at RM905m. The consideration
of RM905.4m, which is based on net assets value, will be satisfied by 1) RM190.4m
cash; and, 2) the issue of 715m new SPV shares at RM1.00 a piece. The
non-gaming assets include 1) financial services, such as insurance; 2) hotels
and 3) property assets. This de-merger exercise does not involve the
stockbroking business as its divestment will go through a MBO (management buy
out), is expected to be completed by this year-end.
Offer for Sale and
capital repayment. After the
demerger exercise, MPHB will change its name to include the world “Magnum” to
better reflect its core business. Post demerger, MPHB will undertake a
renounceable 1-for-2 Offer for Sale of all its 715m SPV shares to its
shareholders at RM1.00 a piece and seek a listing of the SPV on Bursa Malaysia.
The proposed Offer for Sale is expected to result in a one-off pro-forma loss
on disposal of RM250.4m to MPHB. Upon completion of the Offer for Sale, MPHB
will then carry out a capital repayment exercise of all the net proceeds under
the Offer for Sale. The capital repayment is estimated at RM0.48/share.
Win-win for
shareholders. Although the price tag
of RM905.4m for the non-gaming assets is lower than our estimated value of
RM1.24b (with stockbroking business: RM1.44b), we remain positive
on the deal
as the shareholders will enjoy
potential upside to the assets’ fair
value, especially the property assets, as they are offered based on book value.
As such, on a net basis, shareholder’s wealth would remain the same in theory as the combined
value of MPHB and the SPV should be the same as its predemerger value.
Nonetheless, the potential re-rating on MPHB as a pure gaming stock could be
value-accretive to the shareholder.
TP upgraded to
RM4.31/share. As it
will become a
pure gaming stock, we
have decided to
remove the 10%
holdings company discount tag to MPHB’s RNAV. Thus, we are upgrading our
price target on MPHB to RM4.31/RNAV share from RM3.88/share previously. Post
demerger, a NFOonly MPHB would be valued at RM3.39/share with a potential rise
to as high as RM4.52/share should MPHB get to have a lower Beta as Berjaya
Sports Toto Bhd (UP;
TP:RM3.88) when it
turns to be
a yield stock.
MPHB remains as our TOP PICK in
the gaming space.
Source: Kenanga
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