• Malakoff has proposed to acquire 49% of E-Idaman Sdn Bhd for RM133.2mil from Metacorp. The balance of 51% for E-Idaman is held by Cenviro Sdn Bhd.

• Metacorp was de-listed from Bursa Malaysia in 2009. The group is a subsidiary of MTD Capital. Cenviro, majority-owned by Khazanah Nasional, owns and operates Malaysia’s first integrated waste management centre in Negeri Sembilan.

• E-Idaman provides waste collection and public cleansing services for Kedah and Perlis under a 22-year concession granted by the Malaysian government.

• We positively view the proposed acquisition as Malakoff would be able to expand its waste management services to the northern states of Malaysia. Currently, Alam Flora operates in Putrajaya, Kuala Lumpur and Pahang.

• Malakoff’s purchase consideration prices E-Idaman’s entire valuation at RM271.8mil. EIdaman’s financial details such as net profit and book value were not disclosed.

• Assuming an earnings yield of 10%, E-Idaman’s net profit of RM27.2mil would imply an acquisition PE of 10x. We believe that this is fair. In 2019, Malakoff acquired 97.4% of Alam Flora for RM869mil, which translated into a relatively similar PE of 9x.

• E-Idaman’s earnings contribution is not expected to be significant. E-Idaman is estimated to increase Malakoff’s net profit by only 3% in FY24F. As Malakoff’s stake is only 49%, the group would only equity-account E-Idaman’s net profit.

• We maintain BUY on Malakoff with a DCF-based fair value of RM0.75/share (WACC: 7.5%). Malakoff is currently trading at a FY24F PE of 11x, which is below its 2-year average of 14x. We ascribe a neutral 3-star ESG rating to Malakoff.

Source: AmInvest Research - 30 Oct 2023