- We maintain our SELL call on KNM Group, with an unchanged
fair value of RM0.55/share, based on a 10% discount to our diluted book value
estimate of RM0.61/share. Our diluted book valuation excludes the group’s
RM789mil goodwill arising from the acquisition of BORSIG
Beteiligungsverwaltungsgesellschaft mbH (Borsig) from KNM’s adjusted book value
and assumes the proposed rights issue and warrant exercise price at
RM0.40/share.
- KNM has secured a RM100mil credit facility from United
Overseas Bank (Malaysia) Bhd (UOB) to finance the proposed acquisition of a
55-acre vacant development land in Storey’s Bar Road, Peterborough, England
from Poplar Holdings Ltd. Note that UOB is also the sole manager, underwriter
and the placement agent for the proposed listing of the group’s wholly-owned
Borsig on the Main Board of the Singapore Stock Exchange.
- Recall that the land is intended for the development of
the Peterborough Renewable Energy Ltd (PREL) project, which comprises GBP233mil
(RM1.2bil) for the first phase involving a 35MW waste-to-energy plant and GBP251mil (RM1.2bil) for Phase 2’s
additional capacity of 55MW.
- For this proposed acquisition, KNM has thus far paid a
non-refundable exclusivity fee amounting to RM2mil up to August this year,
which could rise to an estimated RM7mil (based on RM1.7mil/month for extension)
when the acquisition is expected to be completed by October 2012. This is
likely to be written off in 4QFY12 if the acquisition has been completed.
- As the total purchase price of the land is GBP25mil
(RM124mil), KNM will have to source for an additional RM24mil (19%) from other
financiers. We note that while the land acquisition now appears achievable, we
continue to view the most difficult hurdle for the group to cross will be to
source financing for the huge Peterborough Phase 1 project. Hence, we remain uncertain
about the commencement of this project.
- We also note that the group still plans to undertake its
highly dilutive rights issue to repay some of its maturing bonds. Pending
further development on the Peterborough project and the proposed Borsig
listing, we maintain FY12F-FY14F earnings.
- KNM currently trades at a premium of 14% above our
adjusted book value of RM0.61/share vs. a discount of over 10% in the past.
Source: AmeSecurities
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