Malakoff to be earnings accretive to MMC
KUCHING: The listing of Malakoff is expected to be earnings accretive to MMC Corporation bhd (MMC), analysts say.
AllianceDBS Research Sdn Bhd (AllianceDBS Research) in a recent report, explained that based on its preliminary estimates, assuming MMC reduces its stake in Malakoff to 38 per cent from 51 per cent, this would remove RM18.2 billion of Malakoff’s debt from its balance sheet.
It would also reduce gross gearing to 0.65-folds from 2.3-folds now, and lift the financial year 2015 to 2016 forecast (FY15 to FY16F) earning per share (EPS) by five to 11 per cent.
“Also, the Malakoff listing will be a key catalyst as it will offer a benchmark to the breakup value of MMC.
“We estimate the market is assigning a residual value of only RM1.9 billion (versus RM0.7 billion in August 2014 after Gas Malaysia Bhd’s, or Gas Malaysia, share price fell) for its unlisted businesses such as ports, construction, water concession and 4,556 acres of land bank in Johor,” it added.
Meanwhile, on Malakoff’s upcoming listing, AllianceDBS Research said Malakoff’s listing involves the issue of up to 1,521 million shares (30.4 per cent of enlarged share capital) comprising an offer of sale of 521.7 million and public issue of 1,000 million shares.
“The institutional offering will involve up to 1,279 million shares, and the remaining 242.5 million will be for retail investors (including up to 72 million shares reserved for shareholders of MMC),” it said, noting that at the close, the institutional and final retail price has been set at RM1.80 per share.
“Malakoff will be the largest IPP in Malaysia with a total generation capacity of 6,036MW, of which 5,346MW is in Malaysia and the rest overseas.
“It also has an effective stake of 358,850 m3 per day in the water industry. The average life of its PPA is 13 years.
We estimate the market is assigning a residual value of only RM1.9 billion (versus RM0.7 billion in August 2014 after Gas Malaysia Bhd’s, or Gas Malaysia, share price fell) for its unlisted businesses such as ports, construction, water concession and 4,556 acres of land bank in Johor.
“FY14 net profit was RM413 million (versus RM235 million in FY13) on the back of RM5.6 billion revenue (versus RM4.7 billion in FY13).
"The improvement was due to the completion of maintenance work at Tanjung Bin and also consolidation of PD Power,” the research house said.
AllianceDBS Research also pointed out that the total gross proceeds from the public issue of RM1.8 billion will be used to fully redeem its Junior Sukuk Musharakah which will see a steep step up in profit rate from 6.3 per cent to 9.3 per cent, which is expected to result in up to RM113 million interest savings per annum.
In addition, the research house noted out of the RM18.2 billion in borrowings, 88 per cent is denominated in ringgit and the rest in US dollar and Australian dollar while RM12 billion of the total debt will mature after five years.
All in, AllianceDBS Research observed, MMC is currently trading at 57 per cent discount to the research house’s sum of parts value.
“Theoretically, with the listing of Malakoff, the discount should widen. However, this may not apply to MMC as the listing of its prized assets, Gas Malaysia in 2012 and now Malakoff, should provide a floor valuation for MMC, thus narrowing the discount.
“Hence, based on the market values of both Gas Malaysia and Malakoff (at IPO price), the market is assigning RM1.9 billion to the unlisted businesses such as ports, construction, sole airport in Johor, water concession, and 4,556 acres of land in Johor.
“Put in another way, its stakes in Gas Malaysia and Malakoff already form 70 per cent of its market capitalisation,” AllianceDBS Research commented.
It pegged a ‘buy’ call on the stock and a target price of RM4.95 per share based on 20 per cent discount to sum of parts.
AllianceDBS Research