Neutral on Sunway’s full takeover of Blacktop Industries

KUCHING: Analysts remained neutral on Sunway Bhd (Sunway) fully acquiring Black top Industries Sdn Bhd ( Blacktop Industries) for RM70.1 million which will allow the group’s quarry division to penetrate into new markets with a wider market coverage and additional capacity.

The acquisition price of RM70.1 million is derived based on an adjusted net asset value of Blacktop Industries following its audited financial statements for the financial year ended 30 April 2018. Management expects the deal to be completed in 2QFY20.

AmInvestment Bank Bhd ( AmInvestment Bank) said the proposed acquisition will improve both the market share and financial performance of Sunway’s quarry division with an expanded market coverage as it penetrates into new markets.

The increased coverage will result in greater cost efficiency through economies of scale.

“Sunway’s quarry division comprises six quarries and 13 asphalt plants in Peninsular Malaysia. It contributed 4.1 and 1.3 per cents to the group’s revenue and net profit in FY18 respectively,” it said in its note.

“The acquisition of BISB will add two quarries and nine asphalt plants to Sunway.”

Nevertheless, AmInvestment Bank believe the small contribution from the quarry division will not have any significant impact on Sunway’s earnings but Blacktop Industries will still contribute positively to its future earnings.

“Hence, we made no changes to our FY19 – 21 earnings forecast until we obtain more information from the management,” it said.

AmInvestment Bank thus downgrade Sunway to a hold call following the recent run-up in its share price, which now offers limited upside.

“Our fair value is unchanged at RM1.73 based on SOP valuation.”