Based on the draft prospectus of Malakoff that was posted on the Securities Commission website yesterday, we gather that up to 1.52bn shares will be offered  for  sale,  comprising  of  1.28bn  new  shares  and  521.7m  existing shares. The offer price and amount to be raised from the re-listing exercise have yet to be determined. We note however that Malakoff intends to use 90% of the listing proceeds to fully redeem the Junior Sukuk Musharakah (JSM)  and  5%  will  be  used  for  business  expansion.  The  remaining  5% would be used to fund working capital requirements and listing expenses. (Source: SC)

Comment:  While  initial  reports  have  indicated  that  MMC  intends  to  raise US$1bn  (RM3.55bn)  from  Malakoff’s  re-listing,  we  believe  that  Malakoff may raise only  about  RM2.9bn.  Our  preliminary  estimate  is  based  on  the assumption  that  Malakoff  would  like  to  raise  enough  funds  to  only sufficiently fully redeem  the JSM, which is believed to be worth RM1.7bn. Taking this into account, we estimate that Malakoff will need to raise about RM1.9bn  from  the  issuance  of  new  Malakoff  shares,  while  MMC  would receive about RM1bn from its existing shares offered for sale.

MMC  would  be  able  to  pare  down  its  existing  holding  company  debt  of RM3.3bn by about a third, if it utilises all the proceeds from Malakoff’s relisting to de-gear as widely anticipated by the market. This is positive as it may  provide  a  13%  boost  to  MMC’s  2015E  earnings,  assuming  all  else equal.

Based on the assumption that Malakoff would raise RM2.9bn, we estimate that  Malakoff  may  be  relisted  at  RM1.89  per  share,  premised  on  our forecast of 8.4 sen 2015E EPS (our 2015E net profit forecast is RM419m while the enlarged share capital is estimated to be 5bn shares). At RM1.89 per share, this translates to a 22.5x 2015E PE, which is a 69% premium to TNB’s  13.8x  2015E  PE.  This  suggests  that  MMC  may  be  using  the  gasrelated  companies  such  as  Petronas  Gas  (23.4x  2015E  PE)  and  Gas Malaysia (19.4x 2015E PE) for valuation benchmarking instead of TNB.

We  note  that  as  the  draft  prospectus  does  not  include  forecasts  and  the actual  amount  of  listing  proceeds  to  be  raised,  our  initial  estimates  and preliminary  valuation  of  Malakoff  are  subject  to  change  pending  further clarification and guidance from management. No change to our Buy rating on MMC with TP of RM3.20.

Source: Affin Hwang Capital Research - 13 Jan 2015