• Pintaras Jaya plans to acquire Pintary International for S$5.6m or RM16.7m – a 7x of its FY19 guaranteed profit.
• The acquisition provides exposure to Singapore as Pintary adds RM143.2m orderbook over the next 1 year.
• We are negative on the acquisition given its RPT while valuation also not compelling.
• Maintain HOLD with a revised TP of RM2.35 (from RM2.80) as we factor in the acquisition receiving the green light. Nevertheless, its current dividend yield of 7.8% remains attractive.

A RPT by its largest shareholders

Pintaras proposed to acquire a Singapore unit, Pintary International (PI) for S$5.6m or RM16.7m cash. The basis of the valuation is 7x on its FY19 guaranteed profit of RM2.4m. PI is wholly-owned by Pintaras' largest shareholder, Dr. Chiu Hong Keong, which makes this a related party transactions (RPT). The transaction requires approval over EGM from non-interested shareholders.

Platform for Singapore's footprint

The acquisition would provide Pintaras exposure to the Singapore piling & foundation subsector. PI’s has an outstanding orderbook of RM143.2m, providing a year of earnings visibility. PI has been in the Singapore market for 5 years.

Negative on the acquisition

We are negative on the acquisition given it is an RPT. Also, we note that valuations are not compelling; at 7x FY19 PE, it implies 3.35x price to book value (PBV). It also has limited earnings visibility from FY20 onwards. With the acquisition funded entirely by cash, it also reduces Pintaras’ net cash position while assuming PI’s RM24.4m debt.

Hold with lower TP of RM2.58

We maintain our HOLD call with a lower SOP-derived TP of RM2.35 (from RM2.80) as we factor in the acquisition receiving the green light. While the RPT transaction is clearly negative, in our view, the stock still offers attractive dividend yield of 7.8% based on our assumption of a 20sen DPS.

Source: BIMB Securities Research - 6 Aug 2018