We remain bullish on MPHB as our meeting with management yesterday revealed a clearer picture of the demerger timeline. With the demerger exercise near to completion, we believe buying interests will resurface soon amidst the stock having traded mainly sideways over the past three months. The current valuation for its gaming assets is estimated at 14x CY13 PER. Coupled with the yield of 7.6%, MPHB's valuation is fairly in line with that of BToto, while the additional cheaply priced new MPHBC shares that to be offered the MPHB's shareholders soon is a bonus value. Meanwhile, MPHB is poised for a re-rating for being a pure NFO play while there will also be more upsides for MPHBC upon its listing early next year. MPHB hence remains our TOP PICK in the gaming space with an unchanged TP of RM4.31/RNAV share.
Decoupling exercise to be completed by year-end. We met up with the management of Multi-Purpose Holdings Bhd (MPHB) yesterday to get the latest developments on its demerger exercise. We understand that the SC/BNM/MoF approvals for MPHB Capital Bhd's (MPHBC) listing is likely due by end of this month before its planned EGM early next month. The Prospectus will be out by the year-end, and the listing is expected in Jan 2013. To recap, the demerger exercise was announced in May 2012 and a Draft Prospectus was released in Sep 2012. The estimated 48 sen/share capital repayment will be distributed to shareholders likely three months after the listing of MPHBC.
Fair gaming valuation for now. We estimate that a gaming-only MPHB would make a net profit of RM322m (81% of our current forecast) in FY13 with a GDPS of 23.9 sen. This translates into a 14.1x CY13 PER and a 7.6% gross yield, which are fairly in line with the valuations of Berjaya Sports Toto Bhd ('BToto', UP; TP: RM3.88) at 14.3x CY13 PER and 7.8% gross yield. However, we expect a rerating on the stock post-demerger for being a pure NFO play. The intrinsic value for a gaming-only MPHB will increase to RM4.00/share from RM2.94/share if we apply the same Beta of 0.599 for BToto to MPHB's 1.092.
MPHBC is at deep discount. To recap, all the shares of MPHBC will be offered to the shareholders of MPHB under a renounceable 1-for-2 Offer for Sale at RM1.00/share worth RM715m (MPHB is expected to recognise a RM250m disposal loss). The RM1.00 offer price is 41% below our estimated MPHBC value of RM1.24b or RM1.73/share, which is already fairly conservative as we largely based its valuation on just the NBV of its assets. MPHB had indicated earlier that the discount is mainly to reward its shareholders.
More upsides for MPHBC. We understand that 2,800acres of land in Pengerang (60% out of 4.641acres) has been compulsorily acquired two months ago for the RM60b RAPID project at RM0.93/sft, which is above its average NBV of its Pengerang land at RM0.39/sft. The acquisition price is, however, a far cry from the known average compulsorily acquisition price of RM3.00/sft in the area. Currently, MPHB is appealing the acquisition price. Valuing its Pengerang land at RM0.93/sft, the value of MPHBC would increase 9% to RM1.89/share. At RM3.00/sft, MPHBC value would surge by 43% to RM2.47/share.
BUY now to get MPHBC for free. We see two re-rating catalysts to MPHB now i.e. 1) a rerating of its gaming assets and 2) the revaluation of the land bank at MPHBC. Even at the scenario where the valuation for its gaming asset remains status quo (same as BToto), one will still get the MPHBC share for free as the capital repayment is almost enough to pay for the share. Hence, we are maintaining our OUTPERFORM call and TOP PICK in the gaming sector on MPHB with a TP of RM4.31/RNAV share.