Malakoff shares down on Alam Flora bid
Investors may be uncomfortable with acquisition
PETALING JAYA: The share price of Malakoff Corp Bhd fell after the announcement that it would acquire Alam Flora Sdn Bhd for RM944.61 mil cash from sister company DRB-Hicom Bhd.
Malakoff slid eight sen or 8.17% to close at RM0.95.
DRB-Hicom, on the other hand, gained eight sen or 3.57% to close at RM2.32 on news that it was monetising its investment in Alam Flora.
Malakoff, an independent water and power producer, announced yesterday that its unit, Tunas Pancar Sdn Bhd, had entered into a conditional share sale agreement to acquire a 97.37% stake in the waste management company from Hicom Holdings Bhd, a unit of DRB-Hicom.
Based on the sell-off on Malakoff shares, an analyst said investors may be uncomfortable with the proposed acquisition.
“The drop in Malakoff’s share price is likely due to the valuation aspect, and also because it is a related-party acquisition – investors may not be comfortable with this,” he told StarBiz.
DRB-Hicom and Malakoff are linked to Tan Sri Syed Mokhtar Al-Bukhary.
Alam Flora has a 22-year concession – expiring on Sept 1, 2033 – to collect solid waste and garbage in Pahang, Kuala Lumpur and Putrajaya.
It reported a pre-tax profit of RM99.66 mil for the financial year ended March 31, 2018 (FY18).
In a statement, Malakoff said the acquisition would enable its expansion into environmental-related services, commencing with Alam Flora’s integrated solid waste collec- tion and management and public cleansing management services business.
The agreement is conditional upon, inter-alia, approvals from non-interested shareholders of Malakoff and DRB-Hicom at their respective EGMs, as well as approv- als from relevant authorities and financial institutions.
Analysts appeared to be divided on the acquisition, with some positive on the proposal while others were less enthusiastic.
“Although the acquisition is earnings accretive, we feel it is expen- sive and Malakoff could still embark on its renewable energy initiatives without having to own the entire waste assets of Alam Flora,” Public-Invest Research said in a report.
It noted that valuation-wise, Malakoff will be forking out a FY18 price-to-book value (P/BV) of 3.4 times and FY18 price-earnings ratio (PER) of 12.8 times (excluding tax incentives).
The research house, which has a “sell” call on the counter, said this appeared to be expensive compared to its own valuation of eight times the PER.
Kenanga Research, however, is positive on the proposal, saying it viewed the valuations to be fair, the acquisition to be earnings positive, and that it was comforted by its earnings certainty towards Malakoff.
“Despite some initial scepticism, given that it is a related-party transaction, after further studying, we ultimately think the acquisition valuation is reasonably fair,” it said.
It noted that the independent valuer for the deal had arrived at a fair-value range of between RM875 mil and RM1.05bil, which implied a valuation range of between nine and 11 times the PER.