We are upbeat on Sunway’s value unlocking exercise to
list SCG, its construction & precast business unit. As the
business’ value is now realised, we maintain BUY and raise our FV to
MYR3.90 (from MYR3.60), an upside of 16%. Assuming a 13x listing
P/E, we estimate that its shareholders will receive 25-30 sen
special cash DPS, and one SCGshare worth about MYR1.21/share for
every 10 Sunway shares held.
Listing of SCG. Sunway plans to list its construction
& precast business unit, and the listing vehicle will be named
Sunway Construction Group Berhad (SCG). SCG will have 1,293m share
base. Upon listing, Sunway will retain control of at least 51%.
The new SCG shares will be distributed by way of dividend-in
-specie to Sunway’s shareholders,based on entitlement of one
SCG share for every 10 Sunway shares held. Sunway’s shareholders
will also enjoy a special cash dividend.
Potential valuations for SCG. Given the company’s
expected earnings base (MYR50m PATMI in 1H14) and MYR3.4bn outstanding
orderbook, SCG will be comparable to the top-tier listed
construction companies, which are currently trading at 11-17x
P/E. Note also, that most of the peers are not pure
construction play, as they have exposure to the property
development segment. Unlike its peers, SCG will be more likelyto
secure consistent flow of construction works as more property
investment assets will be built, and property projects will be
undertakenby Sunway. Hence, this could ensure sustainable
earnings growth for SCG. This year, management is confident to
hit MYR2.5bn orderbook replenishment (from MYR2bn in FY13).
Given the prospects and the recent successful debut of Econpile
(ECON MK, NR), a small cap construction company, we think a
valuation multiple of 13x is justifiable.
Potential windfall for shareholders. Assuming a 13x
P/E on estimatedPATMI of MYR120m (management expects 2H earnings to be
stronger), SCG could potentially be worth MYR1.56bn, which
translates into MYR1.21/share. As management emphasises that
allocation of proceeds for working capital purpose is limited and
gearing for SCG will be minimal, about 35% of the proceeds will be
paid out as special cashdividend. This works out to be about 25-30
sen/share.
BUY. Sunway, our Top Pick for the sector, has
a strategic business structure that allows it to unlock asset
values from time to time, which benefits the shareholders over the
long term. As more values are now being realised, we revamp our
SOP valuations. We raise our FV to MYR3.90 (from MYR3.60).
Maintain BUY.
Timeline and approval process. We
make no changes to our earnings forecasts for now, pending more
details on the corporate exercise and pro forma numbers. SCG will
tentatively be listed on Bursa Malaysia in 2Q15. The corporate
exercise will need to go through various regulatory submissions, and an
EGM will then be convened for shareholders’ approval in 1Q15.
Offer structure:
1. Proposed distribution-in-specie of 13.3% of issued and paid-up share capital of SCG to existing Sunway Bhd shareholders. The distribution is on the basis of one SCG share for every 10 Sunway Bhd shares held at the entitlement date to be determined later.
2. Proposed offer for sale of 31.0% of issued and paid-up share capital to institutional & retail investors.
3. Sunway Bhd to retain control of 55.7% of SCG after proposed listing (before over-allotment option).
Note that the strike price for warrants will be adjusted accordingly
1. Proposed distribution-in-specie of 13.3% of issued and paid-up share capital of SCG to existing Sunway Bhd shareholders. The distribution is on the basis of one SCG share for every 10 Sunway Bhd shares held at the entitlement date to be determined later.
2. Proposed offer for sale of 31.0% of issued and paid-up share capital to institutional & retail investors.
3. Sunway Bhd to retain control of 55.7% of SCG after proposed listing (before over-allotment option).
Note that the strike price for warrants will be adjusted accordingly
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