- Kulim Bhd has proposed to acquire a 60% shareholding in Danamin Sdn Bhd for RM12.9mil.

- The shares in Danamin will be acquired from existing individual shareholders and issuance of new shares.

- Danamin services companies in the oil and gas sector. Danamin specialises in nondestructive testing and engineering inspection.

- According to the Bursa Announcement, Danamin is forecast to record a net profit of RM2.8mil for FY13F.

- Danamin has also provided a profit guarantee of RM4.0mil in total for FY13F and FY14F.

- We are neutral on this development as the earnings contribution from Danamin to Kulim is not expected to be significant. The investment amount of RM12.9mil is also not large.

- We estimate that Kulim is acquiring Danamin on a FY13F PE of 7.7x, which is undemanding.

- Kulim’s vessels in the shipping division are involved in the oil and gas sector. However, the group has proposed to dispose some of its shipping assets.

- Recall that Kulim proposed to sell its effective interest of 35.8% in Orkim Sdn Bhd for RM110mil in March 2013.

- Hence, what is left in the shipping division is Kulim’s 51% shareholding in EA Technique Sdn Bhd. The latter owns eight tankers with total capacity of 85,000 DWT.

- Shipping division accounted for 44% of Kulim’s operating profit in 1QFY13.

- We maintain a HOLD on Kulim as earnings contribution from 49%-owned associate, New Britain Palm Oil Ltd remains unexciting.  

Source: AmeSecurities