KNM announced yesterday on Bursa Malaysia that it has approved the appointment of UOB  Bank  as  the  sole  manager,  underwriter  and  placement  agent  for  the  listing  of Borsig,  its  wholly-owned  subsidiary,  on  the  main  board  of  the  Singapore  Stock Exchange  (SGX).  The  proposed  listing  will  be  subjected  to  the  approval  of  the  KNM shareholders and compliance with the rules and regulations of Bursa Malaysia.

OUR TAKE  

Indicative valuation of RM1.8bn-RM1.9bn for Borsig. To recap, KNM paid EUR350m for  Borsig,  a  German  company  whose  units develop,  manufacture,  install  and  maintain plants and processing equipment in the chemical, petrochemical, oil and gas, power and
industrial  services  industries.  While  not  much  information  was  stated  in  the announcement,  we  understand  that  Borsig  is  expected  to  fetch  a  valuation  of  some RM1.8bn-RM1.9bn, which is not much above the RM1.7bn it paid for the company. 

Company could turn net cash in FY13.  Assuming that KNM disposes of a 25%-30% stake  in  Borsig,  the  listing  exercise  could  fetch  some  RM450m-RM540m,  based  on  a valuation of RM1.8bn for Borsig. Hence, the company would turn net cash in FY13 and the exercise should reduce the intangible assets on KNM's balance sheet as we believe bulk of it was made up of the Borsig acquisition.

Positive for the share price in the short term. We believe there will be more upside to KNM's  share  price  in  the  short  term  since  the  stock  is  traditionally  driven  by  positive news flow.

Fair value (FV) under review. As not much information is shared in the announcement, we  are  maintaining  our  forecasts  for  now  pending  updates  from  management. We  are thereby putting our rating and fair value under review. We previously valued the share at RM0.80, based on the existing 13x FY12 EPS and had a NEUTRAL recommendation on the stock.

Source: OSK