Malakoff Corporation has proposed to acquire Khazanah Nasional’s effective interest of 20% in Saudi-Malaysia Water & Electricity Co (SAMAWEC) for US$70mil or RM289.8mil.
After the proposed acquisition, Malakoff’s effective interest in SAMAWEC will increase to 40% from 20%.
SAMAWEC has a 60% shareholding each in Shuaibah Water & Electricity and Shuaibah Expansion Holding Ltd.
The proposed acquisition is expected to be completed in 4QFY19.
We estimate that the increase in Malakoff’s effective interest in SAMAWEC will improve Malakoff’s FY20F net profit between 7% and 9%.
In FY18, Malakoff’s share of net profit in Shuaibah Water & Electricity and Shuaibah Expansion Project Company was RM47.5mil. This was 17.3% of Malakoff’s reported net profit of RM274mil in FY18 (inclusive of gain on disposal of RM55mil).
We also estimate that the proposed acquisition will raise Malakoff’s fair value by 5 sen/share.
We have not accounted for the proposed acquisition in our FY20F earnings forecast for Malakoff yet.
Malakoff is not expected to face issues financing the proposed acquisition. The group’s gross cash reserves stood at RM1.16bil as at end-March 2019.
Overall, we view the proposed acquisition positively as it is earnings-enhancing. The proposed acquisition would increase Malakoff’s effective seawater desalination capacity to 544,375 cubic metres/day from 420,925 cubic metres/day.
Maintain HOLD on Malakoff with an unchanged fair value of RM0.90/share for now.
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