Malakoff Corp’s Bhd’s initial public offering is scheduled to hit the market in May15, with an indicative price of RM1.80 per share, valuing the company at RM9bn. Based on the indicative IPO price, the street is valuing Malakoff at a range of 12 to 18 times its 2015 earnings. (Source: StarBiz, Bursa)

Comments:  The indicative IPO price of RM1.80/share is similar to our initial IPO  price  estimate  of  RM1.89,  which  was  based  on  Malakoff’s  draft prospectus released earlier. At RM1.80, this translates to a 21.4x 2015E PE 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). This suggests that Malakoff’s IPO valuation is an 84% premium to TNB’s  11.6x  2015E  PE.  Unless  our  earnings  estimate  for  Malakoff  is  too conservative,  this  suggests  that  MMC  may  be  using  the  gas-related companies  such  as  Petronas  Gas  (23.6x  2015E  PE)  for  valuation benchmarking instead of TNB.

We note that as the circular to shareholders by MMC Corp does not include forecasts,  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 RM3.15.

Source: Affin Hwang Capital Research - 17 Mar 2015