09 May 2012
Kenanga Research estimates that proceeds from MPHB's disposal of non-gaming assets worth RM 1.44 billion is enough to pay a special dividend of 56 sen per share, even after redeeming all outstanding debts, target price RM 3.72, Outperform
(MPHB opening stock price today (9.5.2012) was RM 2.98)
Kenanga sees three key catalysts in Multi-Purpose Holdings Bhd (MPHB) at this juncture, which is likely to re-rate the stock further.
First, the stock is cheap. Second, it is transforming into a clean-cut number forecast operator (NFO) play. And third, there could be a special dividend to reward investors. MPHB is now in the middle of an asset rationalisation exercise to dispose off non-gaming assets. The proceeds should be enough to raise its already-attractive dividend payout as well as a one-off special dividend payment of 56 sen.
More importantly, with the disposal, it will become a pure NFO play, which will force the market to push its valuation probably up to par with current favourite Berjaya Sports Toto Bhd’s valuation, which is 23% discount now.
In addition, at its current price of RM2.88, one is actually buying the stock for almost free the worth of its non-gaming assets of RM1.77. Hence, the stock is clearly undervalued at this stage.
We are thus initiating coverage on MPHB with an “outperform” conviction. Our target price of RM3.72 per share is a 10% discount to its revised net asset value.
Through its subsidiaries, MPHB is involved in the gaming, stockbroking, financial services, hospitality and property sectors. About 75% of MPHB’s earnings are derived from its NFO business, with the insurance unit being the second-largest earnings contributor at about 12%.
Its hospitality and property division contributes about 10% to the group, with stockbroking being the smallest unit.
MPHB is trading at 11.2 times calendar year 2012 price/earnings ratio, a 23% discount to another listed NFO player, Berjaya Sports Toto Bhd. This, we believe, has been mainly due to MPHB being an investment company, which typically commands lower valuation compared with a single-purpose business entity.
Since Dec 2011, MPHB has completed the disposals of Menara MPHB and Flamingo Downtown in Pudu, Kuala Lumpur. Apart from the re-rating catalyst, MPHB is expected to raise funds from the disposal exercise. We have estimated that based on net book value, its non-gaming assets are worth about RM1.44bil.
If MPHB were to use the proceeds to redeem all its outstanding debts, it will become a net cash company. With a net cash of RM805mil, MPHB would be able to distribute 56 sen as a special dividend to reward shareholders, in addition to its already-attractive regular gross dividend yield of 6% to 7%.
We expect core earnings to grow at 14% three-year compound annual growth rate over the next three years, mainly led by its NFO business under wholly-owned Magnum Corp Sdn Bhd.
Our earnings model still includes contributions from the non-gaming businesses at this juncture, although as mentioned, their disposals are likely to result in a better valuation for the stock. The asset rationalisation exercise is the key to unlocking MPHB’s value.
We believe it is a good time to buy MPHB now at its undemanding valuation before it gets re-rated after the completion of the exercise.