The share price of MPHB has rallied 13% since the announcement of its de-merger exercise at the end of last month. However, we believe it is still not too late to buy into the re-rating story as its current valuation of CY13 12x PER is still cheaper  than that of BToto's 14.0x. The valuation could reach RM4.52/share should MPHB gets to the same Beta as BToto. Post de-merger, MPHB will become a yield stock where it will pay out at least 80% of its resilient gaming earnings. For a start, a 56 sen special dividend has been proposed by the company. MPHB remains as an OUTPERFORM with a TP of RM3.72/share, a 10% discount to its RNAV and is now our TOP PICK in the gaming space. 

Decoupling to unlock value.  Since the announcement of its de-merger exercise on 24 May 2012, the share price of  Multi-Purpose Holdings ('MPHB')  has performed positively with a 13% rise. Under the plan, the gaming asset will remain at MPHB while a SPV will take over all the nongaming assets and eventually be listed on Bursa Malaysia at an offer price to be determined later. Upon completion, MPHB will use the sale proceeds to reward shareholders by way of a capital repayment. The entire demerger exercise is expected to be completed by end of the  year. Post-demerger, MPHB is committed to pay out at least 80% of its gaming earnings. 

Non-gaming assets valued at RM1.44b.  We have estimated that the non-gaming assets could be worth c.RM1.44b, which will enable MPHB to redeem all its outstanding borrowings and turn the group into a new cash company. With the net proceeds, MPHB would distribute 56 sen as a one-off special dividend to its shareholders. Nonetheless, we believe this number is still conservative given that our RNAV model values its property assets/lands based on their NBV only, with the market prices likely being much higher.

MPHB could be valued as high as RM4.52/share. Besides the one-off special dividend, the regular GDPS will jump to 24.9sen (5.7% net yield) based on its 80% dividend payout policy from 17.2sen (3.9% net yield) based on a 50% payout previously. In addition, a gaming-only MPHB would be valued at RM3.39/share with a potential rise to as high as RM4.52/share should MPHB gets to have the same Beta as BToto of 0.710 from its current Beta of 1.092. The lower Beta is likely and valid,  especially so when the company becomes a yield stock as it would then be less sensitive to the overall market performance.

14% CAGR over 2011-2014. We expect core earnings to grow at a 14% 3-year CAGR over the next three years, mainly led by its NFO business under 100%-owned Magnum Corp Sdn Bhd. Our earnings  model still includes contributions from the non-gaming business at this juncture, although as mentioned, their disposals are likely to result in a better valuation for the stock. 

TOP PICK in the gaming sector. Although the share price has risen 13% in less than a month, we believe it is still not too late to buy into its rerating story. At the current valuation of CY13 12x PER, MPHB is still cheaper than the valuation of BToto at 14x. With the proposed listing of Sports Toto as a Business Trust in Singapore, MPHB will be the only NFO proxy in the local market. We maintain our OUTPERFORM rating on MPHB with a price target of RM3.72/share, a 10% discount to its RNAV.